EBay gave a disappointing outlook that reflected caution about a U.S. economic slump and competitive threats to its online auction business, sending its shares down 7 percent .
The outlook for a weak current quarter and unchanged full-year estimates overshadowed a second-quarter net profit that beat Wall Street estimates, helped by a surge in listings and share buybacks.
"The market was looking for a bigger beat,'' said Jeffrey Lindsay of Bernstein Research. "At another time this would have a very positive response. In this environment, it looks like the extent by which they beat wasn't enough.''
Moreover, investors may have oversized expectations about how online sellers can perform in the weak economy, he added. RBC Capital analyst Stephen Ju noted that while eBay beat in the second quarter, it basically stuck to previous full-year goals instead of raising them, as some investors had hoped.
"Why set yourself up with a high hurdle in the current economic environment?'' Ju said, noting there was further uncertainty given changes to its auction platform.
The company has been lowering upfront listing fees to attract more sellers as it has faced slower growth in its main auction business in recent years. The tinkering with fees and effort to improve trust between buyers and sellers are aimed at reviving growth amid intense competition from Amazon.com and craigslist.com.
For the third quarter, eBay said it expects revenue of $2.10 billion to $2.15 billion, and adjusted earnings per share of 39 cents to 41 cents. Those were below average analyst projections of 41 cents per share on revenue of $2.17 billion. (See accompanying video for more.)
Second-quarter net income rose 22 percent to $460 million, or 35 cents per share, from $376 million, or 27 cents a share, a year earlier. The company bought back 19 million shares worth $566 million in the quarter, helping lift earnings per share.
Revenue rose 20 percent to $2.2 billion.
Excluding stock option expenses and merger-related costs, eBay posted earnings of 43 cents per share, 2 cents above what analysts, on average, had been expecting, according to Reuters Estimates. Wall Street had expected revenue of $2.17 billion.
The San Jose, California-based company, best known for online auctions but also the owner of payment service PayPal and Web-based call service Skype, said it now expects 2008 revenue of $8.8 billion to $9.05 billion, up slightly from a range given in April of $8.7 billion to $9.0 billion.
That guidance is roughly in the lower half of Wall Street estimates ranging from $8.9 billion to $9.24 billion, according to Reuters Estimates.
EBay expects adjusted earnings to range between $1.72 and $1.77 per share, compared with the $1.74 expected, on average, by Wall Street.
Second-quarter results were helped by international revenue that grew 27 percent, boosted by translating foreign currency earnings into a weak dollar. U.S. sales grew 12 percent.
EBay listings surged 19 percent from a year ago, after suffering declining growth much of last year. But the number of active users rose a mere 1 percent.
John Donahoe, who took over as chief executive this year, highlighted the contribution of PayPal, where revenue grew 33 percent to $602 million and growth showed no sign of letting up. At Skype, which added 29 million new users, revenue rose 51 percent to $136 million.
On Monday, eBay scored a major legal victory as a New York judge ruled that Tiffany & Co could not force Amazon to police its site for knock-off Tiffany jewelry. The ruling, which is likely to stave off future U.S. lawsuits from brand owners, said trademark holders, and not third-party operators, are ultimately responsible for protecting brands.
But in France, eBay is appealing a recent ruling ordering it to pay $61 million to luxury brand LVMH over sales of fake handbags and perfume on eBay's site.
EBay shares are valued at 16 times projected 2008 profit, below Amazon at 45 and Internet companies Google and Yahoo at 26 and 47 times, respectively.