EBay Dodges A Financial Bullet--Sort Of


It could've been much worse, especially in the crazy climate we're seeing on Wall Street.

On the day the company announces CEO Meg Whitman's retirement, on a day when there was so much optimism about eBay's fourth quarter earnings, and on a day when the Street finally began to turn things around, eBay beats earnings expectationson the top and bottom lines.

So you'd think light guidance would torpedo this company, especially since it rallied better than 7 percent into the earnings news. Indeed, woe is the company that disappoints the Street, especially on guidance.

EBay reported 45 cents a share in EPS, beating analysts by 4 cents. Good news. The company is reporting $2.18 billion in revenue versus the $2.14 billion expected. Also good news. Some of the company's key metrics: Gross Merchandise Volume came in right in line at $16.2 billion; PayPal continues to shine at eBay, posting $563 million in revenue. Total Payment Volume fell short of expectations however, reporting $14.04 billion instead of the $14.3 billion some analysts were anticipating. All pretty good news.

But it's the guidance that could trip up the company and its investors: For eBay's current quarter, the company now expects an EPS range of 37 cents to 39 cents a share. Analysts expected 40 cents a share. Revenue also looks light: a range of $2 billion to $2.05 billion when the Street was closer to $2.15 billion.

For the full year 2008, eBay now offers an EPS range of $1.63 to $1.67, while most analysts I spoke to this morning expected something far closer to $1.66 or $1.67. EBay's range suggests a mid-point of $1.65, a penny below many analysts on the Street.

Same goes for revenue. Most analysts I talked to are around $8.9 billion or $9 billion. The consensus for 2008 revenue was $9.011 billion. EBay now offers a revenue range of $8.5 billion to $8.75 billion, far below consensus.

Citigroup's Mark Mahaney just told me it was a "beat" quarter and essentially inline guidance. He tells me the guidance isn't as pessimistic as people thought it would be. As far as Whitman's departure, an interesting footnote to the company's history but not a material factor.

He calls the outlook "neutral," and because the fourth quarter beat so nicely, he's inclined to view eBay's results as a kind of "bird in hand versus the bird in bush. That's a positive, he says. But he's one voice and so far, he's not forming a chorus. eBay shares are beginning to slide.

Now the question is whether eBay can mollify the Street on its earnings call; whether a change in leadership, with John Donohoe now taking over for CEO Meg Whitman as of March 31 (she'll stay on as a director of the company); whether the company's announcement today of an additional share buyback of $2 billion will be enough to hold today's rally.

Should be interesting to see what internet sector investors do next now that they have such a key piece of the puzzle in hand.

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