EBay Rises as Third-Quarter Results Point to Turnaround

EBay Inc. (EBAY), the world’s largest online marketplace, rose the most in three months after third- quarter results fueled optimism that the company’s turnaround is gathering steam.

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A QR code is seen attached to a guitar at the EBay Inc. Christmas “pop-up” store in London, on Nov. 29, 2011. Photographer: Chris Ratcliffe/Bloomberg

Shares gained as much as 5.1 percent, the most since July 19. Third-quarter revenue climbed 15 percent to $3.4 billion, the company said yesterday in a statement. That was in line with the $3.41 billion average analyst estimate compiled by Bloomberg. Profit excluding some items was 55 cents a share, also matching analysts’ predictions.

Chief Executive Officer John Donahoe has been spending money on mobile technology, marketing campaigns and a website redesign, seeking to vault the company beyond its roots in Internet auctions. EBay has added retail partners such as Brooks Brothers Inc. and Stanley Black & Decker Inc. (SWK), improved search and made shipping faster, while its mobile applications have reached 100 million downloads.

“The EBay marketplace has improved and is now growing at average e-commerce rates,” Colin Sebastian, an analyst at Robert W. Baird & Co., said in a note to clients today. “E- commerce is entering a new wave of growth, fueled not only by the ongoing secular shift in spending from offline to online, but also by the rapid penetration of Internet-enabled mobile devices, local shopping apps, and social networks.”

Shares of San Jose, California-based EBay increased 4.7 percent to $50.48 at 12:26 p.m. in New York. Through yesterday, the stock was up 59 percent this year.

PayPal Revamp

PayPal, which made up 43 percent of EBay’s revenue last year, has also driven growth. Revenue rose 23 percent to $1.37 billion in the period, and total payment volume climbed 20 percent to $35.2 billion. The unit had 117.4 million users in the third quarter, a 14 percent increase from a year earlier.

The payment processor is being revamped by President David Marcus, who took over in April and has vowed to make PayPal, bought by EBay in 2002, more agile and efficient. Marcus has so far consolidated nine product groups into one and plans to reorganize workers, moving them from walled-off cubicles and offices to open rooms.

PayPal plans to eliminate jobs in the next few weeks, a person familiar with the matter said last week. The unit, which has 13,000 employees, will cut 300 to 400 jobs primarily in its product and technology groups, according to the person, who asked not to be named because the plans are private.

While EBay is focused on streamlining and simplifying PayPal, the impact of any possible changes have not yet been announced, Donahoe said on a conference call yesterday with analysts.

Site Redesign

EBay made changes in the third quarter that targeted convenience and customer service for marketplace visitors. The company paired up with Geek Squad Inc. this month to offer 24- hour technical support for electronics sold on the site, and released an application called EBay Now that offers customers same-day delivery.

The online retailer also redesigned its homepage, centering it around photos, similar to Pinterest Inc., a site that lets users share photos by pinning them to a virtual bulletin board. There are more than 2 million items listed a week from mobile devices, Donahoe said on a conference call yesterday.

“More and more consumers are trying our products for the first time and they like what they see,” Donahoe said in an interview. “Mobile is becoming a central control system in people’s lives.”

Holiday Season

Net income in the third quarter rose to $597 million, or 45 cents a share, from $491 million, or 37 cents, a year earlier, the company said.

Revenue in the current quarter will be $3.85 billion to $4 billion, EBay said, compared with an average analyst projection of $3.94 billion. The company forecast profit excluding some items of 66 cents to 69 cents a share, versus a 68-cent estimate.

EBay forecast an “OK” holiday season in an earnings presentation to analysts yesterday, similar to language it used a year ago. Comparable sales rose 21 percent in September from a year earlier, less than August’s 24 percent growth, ChannelAdvisor Corp. said earlier this month.

“There are uncertainties still at this point regarding consumer spending over the holidays,” said Sebastian, who has an outperform rating on EBay. “There are event-driven uncertainties, such as elections, the fiscal cliff, debt issues in Europe.”

U.S. online retail sales growth will slow to 12 percent during the holiday season this year, compared with a 15 percent jump last year, the Washington-based National Retail Federation said on Oct. 2.

EBay is trading at 22 times projected earnings, compared with 15 for Target Corp. (TGT) and 16 for Wal-Mart Stores Inc. (WMT) Amazon.com Inc. (AMZN), which traditionally carries a much higher valuation, is trading at 343 times earnings. Amazon’s sales growth rate also slowed to 37 percent in September from 41 percent in the prior month, said ChannelAdvisor, based in Morrisville, North Carolina.


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