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EBay Profit Tops Forecasts, but Outlook Disappoints

EBayreversed last year's loss and beat analysts' expectations, but a weak outlook disappointed investors.

An Ebay sign is shown at Ebay offices in San Jose, Calif., Wednesday, July 20, 2005. The San Jose-based company said Wednesday that it earned $291.6 million, or 21 cents per share, for the three months ended in June, a 53 percent increase from $190.4 million, or 14 cents per share at the same time last year. (AP Photo/Paul Sakuma)
Paul Sakuma
An Ebay sign is shown at Ebay offices in San Jose, Calif., Wednesday, July 20, 2005. The San Jose-based company said Wednesday that it earned $291.6 million, or 21 cents per share, for the three months ended in June, a 53 percent increase from $190.4 million, or 14 cents per share at the same time last year. (AP Photo/Paul Sakuma)

The online auction site turned in a third-quarter profit of 46 cents a share, excluding items, on sales of $2.12 billion, against earnings of 41 cents a share on sales of $1.889 billion in last year's third quarter.

For the current quarter, eBay now expects to earn 39 cents to 41 cents a share excluding items. Analysts had foreseen a profit of 47 cents a share.

The company also sees fourth-quarter sales falling below expectations, to a range of $2.02 billion to $2.17 billion, versus the current consensus estimate of $2.44 billion.

EBay shares , which dropped 13.59 percent to $15.33 Wednesday, fell roughly another 10 percent in extended trading before rebounding somewhat from the worst of those declines.

"They haven't taken guidance down really that much but the fact that they have taken it down at all—people are reading in very negatively," said Senior Analyst Jeff Lindsay of Sanford Bernstein. "I think what they are reading is that if the fourth quarter, which is normally eBay's strongest quarter and it's weak, they've probably seen the first month of the quarter and so it's probably a very bad signal for 2009."

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Analysts polled by Thomson Reuters expect eBay to report adjusted third-quarter earnings of 41 cents per share on $2.13 billion in revenue.

For the most recent quarter, sales from the company's marketplace segment—which includes eBay, Shopping.com, StubHub and other e-commerce sites—rose more than 4 percent to $1.38 billion.

The company's PayPal unit logged much higher growth—27 percent, with revenue rising to $597 million.

EBay's number of new listings jumped 26 percent year over year to 700 million.

But the number of active users—which is an important measure of how well it is doing at bringing in new buyers and sellers—rose just 3 percent in the quarter to 85.7 million.

EBay also said the total value of all goods sold on its site, a metric known as gross merchandise volume, fell by 1 percent from a year ago—the first time it has ventured into negative territory.

"One of the biggest surprises here was the GMV growth, which turned negative for the first time ever," said Jefferies analyst Youssef Squali. "That's not good and I would suspect that, combined with the lower guidance, is sending the stock price down after hours."

To counteract slower growth in auctions, which comprise the bulk of its business, eBay has lowered upfront listing fees and issued coupons to lure buyers who have gravitated to competitors like Amazon.com and Craigslist.com.

The company said on Oct. 6 that the economic downturn and the strengthening dollar were hurting its business. At the time, eBay predicted third-quarter revenue at the low end of its projected range of $2.1 billion to $2.15 billion. However, eBay also predicted adjusted earnings per share above its previous forecast of 39 cents to 41 cents.

EBay's stock fell 18 percent during the quarter.

Earlier this month, eBay said that it will cut about 1,600 jobs, or 10 percent of its work force, in its largest round of cuts so far. Chief Executive John Donahoe said the cuts will make the company "more responsive and nimble."

- Wire services contributed to this report.