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The Honolulu Advertiser
Posted on: Thursday, July 22, 2004

EBay profit more than doubles

By Chris Gaither
Los Angeles Times

EBay Inc. said yesterday that its second-quarter profit more than doubled on the strength of international expansion but offered evidence that the online auction business it pioneered was maturing after almost a decade of voracious growth.

After strong gains during the winter holiday season, eBay executives said they saw a sharper-than-usual slowdown heading into the summer. As the company becomes more mainstream, they said, it's starting to more closely mirror the seasonal dynamics of the offline retail world.

They still expect sharp growth near the end of the year, which includes the crucial holiday shopping months. But in the meantime, they predicted, third-quarter revenue will be slightly lower than in the second quarter.

"The patterns of seasonality we're seeing on eBay are becoming more amplified as eBay becomes an increasingly mainstream operation," Chief Financial Officer Rajiv Dutta told analysts during a conference call.

The San Jose, Calif., company said its net income in the second quarter jumped to $190 million, or 28 cents a share, from $92 million, or 14 cents a share, a year earlier. Sales rose 52 percent to $773 million from $509 million.

EBay said its third-quarter revenue could reach $770 million, falling $7 million short of analysts' consensus estimates. Its earnings forecast of 25 cents a share, not including one-time charges, fell 2 cents shy of Wall Street's projections.

For the full year, eBay boosted its revenue forecast to almost $3.19 billion and its earnings before certain items to $1.17 a share. But Wall Street had expected sales of $3.21 billion and earnings of $1.19 a share.

Investors responded by sending eBay's shares down 5.4 percent to $72.45 in after-hours trading. Before the results were released, the stock dropped $3.35 to $76.60 in regular Nasdaq trading. The stock has faltered in recent weeks after reaching a record high of $92.81 on June 28.

Much of eBay's growth during the quarter came from its auction sites in Germany, England and other overseas markets.

U.S. revenue increased 36 percent to $449.6 million, while international revenue rose 82 percent to $323.8 million, helped by a $26 million boost from the weak dollar.

EBay executives said they expect to continue their expansion into such new markets as China, where the company faces strong competition from rival Yahoo Inc., and India, where it recently acquired the Baazee.com online auction site for $50 million.

The 2002 acquisition of the PayPal online payment service continued to reap benefits for eBay.

Revenue from payments rose 60 percent over the same period last year to $158.8 million.

Analysts said eBay continues to outpace many companies but is showing signs of slowing down. More than $8 billion in goods changed hands through eBay auctions in the second quarter, a 42 percent rise compared with last year. But that was down slightly from the first quarter, the first quarter-to-quarter decline in eBay's history.

The number of items listed for sale on the site grew 48 percent from last year, but only 1 percent compared with the previous quarter.

During the conference call, Piper Jaffray analyst Safa Rashtchy wondered aloud if there was more at work than a seasonal slowdown.

"Are we entering a much more moderate growth for eBay, given that you're approaching a billion dollars in revenue soon?" he asked eBay executives.

Finance chief Dutta and Chief Executive Meg Whitman replied that even as the second and third quarters begin to level off, the first and fourth quarters will continue to grow rapidly.

Separately, eBay said it settled a patent infringement lawsuit brought by AT&T Corp. over technology for online transactions. EBay said the companies had agreed to keep details of the settlement confidential.