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EBay Shares Fall as Forecasts Miss Some Estimates

Wednesday, 19 Oct 2011 06:05 PM

EBay Inc., the largest online marketplace, forecast fourth-quarter sales and profit that missed some analysts’ estimates as it spends more on marketing products to woo developers and strengthen its payment services.

Revenue will be $3.2 billion to $3.35 billion, the company said today in a statement. Excluding some costs, profit will be 55 cents to 58 cents a share. Analysts on average had projected sales of $3.3 billion and profit of 58 cents, according to data compiled by Bloomberg. EBay shares dropped 3.9 percent.

Chief Executive Officer John Donahoe is leading a turnaround of the e-commerce company, whose stock had plummeted 83 percent in five years to a low of $10.27 in 2009. Investors are skeptical that EBay can smoothly integrate acquisitions made in the past year, part of an effort to increase the use of its services across the Web.

“Some of the acquisitions they made probably depressed margins a bit,” said Colin Sebastian, an analyst at Robert W. Baird & Co. in San Francisco.

EBay shares fell to $31.90 in extended trading after the report. The stock declined 2 percent to $33.18 at the close in New York. Shares of the San Jose, California-based company have climbed 19 percent this year.

Third-Quarter Earnings

Third-quarter net income was $490.5 million, or 37 cents a share, compared with $431.9 million, or 33 cents, a year earlier. Sales climbed 32 percent to $2.97 billion, while analysts predicted $2.91 billion. Before certain costs, profit was 48 cents, matching the average estimate.

Sales and marketing expenses rose 29 percent to $623.3 million, EBay said. Spending on marketing to roll out new products may also have weighed on the company’s forecast, Sebastian said.

“We’re seeing the TV ads fairly widespread in front of the holidays,” he said. “They’re probably taking a cautious approach to that as well.”

Aiming to attract more retailers in a market dominated by Seattle-based Amazon.com Inc., Donahoe unveiled EBay’s X.commerce system last week at the company’s Innovate developer conference in San Francisco.

The platform lets any developer create products and connect with retailers, without requiring them to use EBay. It incorporates technologies from the company’s purchases of Magento, an e-commerce platform; Milo, which keeps track of store inventory; and RedLaser, a company it bought in June 2010 that lets mobile users scan bar codes.

Mobile Payments

EBay also added to its stable of mobile-payment services with the $240 million purchase of Zong Inc. in August, as it seeks to help customers make purchases in stores over their mobile phones. In addition, the company is building relationships with big retailers through its June acquisition of GSI Commerce Inc.

EBay expanded its relationship with social network Facebook Inc. last week, saying developers for both the company’s GSI and Magento platforms will work on creating social commerce functions, such as clickable tabs for e-commerce that mirror Facebook’s “like” button.

The online retailer will have to show that this suite of new offerings and its acquisitions will work in harmony and compete with Amazon before investors will trust it can move beyond past mistakes, said Herman Leung, an analyst at Susquehanna International Group in San Francisco.

“For me, it’s sort of a show-me story,” he said in an interview. “These are all interesting concepts, but I would like to see results before being committed. These are new areas, offline payments -- there’s a lot of consumer education that’s involved.”

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