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EBay Lowers Forecast as Currency Weighs on Revenue

EBay Inc., the owner of e-commerce sites and the PayPal payment service, reported second-quarter profit that topped analysts’ estimates while predicting that a foreign-currency slump would eat into overseas sales this year.

Second-quarter net income rose 26 percent to $412.2 million, or 31 cents a share, from $327.3 million, or 25 cents, the company said today in a statement. Excluding some costs, the earnings were 40 cents a share. Analysts had estimated 38 cents, according to a Bloomberg survey.

Even as EBay recovers from a slowdown in e-commerce spending, the company’s international focus threatens the pace of its turnaround. The falling euro and other currencies are diminishing the value of receipts reported in dollars. EBay gets more of its revenue from overseas than any other large U.S. Internet company, including Google Inc., Yahoo! Inc. and Amazon.com Inc.

“The currency is a one-time thing affecting most international businesses,” said Bill Smead, head of Seattle- based Smead Capital Management, an EBay investor. “We like this report.”

The currency impact will hurt annual sales by as much as $250 million, trimming EBay’s forecast for earnings excluding some costs to $1.60 to $1.65 a share. In April, the company had predicted earnings of $1.63 to $1.68 this year. Third-quarter earnings will be 37 cents at most, the company said today, missing the average estimate of 39 cents.

Shares Rise

EBay rose 59 cents, or 2.9 percent, to $20.76 in extended trading after the report. The shares, down 14 percent this year, fell 62 cents to $20.17 at 4 p.m. New York time in Nasdaq Stock Market trading.

Second-quarter sales rose 5.6 percent to $2.22 billion, the San Jose, California-based company said. Analysts surveyed by Bloomberg had predicted $2.16 billion.

Revenue in the third quarter will be $2.13 billion to $2.18 billion, EBay said. Analysts had anticipated $2.2 billion.

In March, EBay lowered and eliminated some listing fees in its Marketplaces business to encourage more merchants to use the service. The company said those changes would boost results in the second half of the year.

‘Not Great’

While confident the changes will help the company in the long run, Chief Executive Officer John Donahoe said he wasn’t satisfied with the progress of the main site in the U.S.

“I have high expectations for our company, our employees and for our customers,” Donahoe said in an interview. “We did good, not great in our execution in the U.S.”

The Marketplaces unit, which includes the main e-commerce site, ticket reseller StubHub and the classified-advertising service, accounts for most of EBay’s revenue.

“We saw a material headwind for EBay, even aside from the currency issues,” said Scot Wingo, CEO of ChannelAdvisor Corp., which helps retailers sell online. “We’ve taken a couple steps forward and then a step back. This is a step-back quarter.”

Mobile services have become a source of growth for the company. Though it trails Amazon.com in overall growth, EBay has become the top mobile retailer in the U.S., according to BGC Partners LP. Goods sold through Apple Inc.’s iPad, iPhone and other mobile devices will more than double to $1.5 billion this year, EBay has said.

The company’s Payments unit, made up of PayPal and BillMeLater, is growing faster. Agreements with banks in China, Singapore and Australia have helped drive PayPal’s expansion.

In the second quarter, total payment volume rose 28 percent to $21.4 billion. The business’s revenue climbed 22 percent to $817 million. That beat some estimates, according to BGC.

EBay bears similarities to Yahoo, said Colin Gillis, an analyst at BGC in New York. Just as Yahoo is struggling to catch up with Google, EBay trails the dominant e-commerce company: Amazon.com.

“PayPal is an overperforming asset, but it’s attached to the Yahoo of commerce,” said Gillis, who has a “hold” rating on EBay shares.

To contact the reporter on this story: Joseph Galante in San Francisco at jgalante3@bloomberg.net

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