EBay Inc. (EBAY) shares rose the most in eight months after sales and profit at the world’s largest Internet marketplace topped analysts’ estimates, spurred by growth in its PayPal online-payments business.
The stock climbed 11 percent to $39.78 at 9:42 a.m. in New York, for the biggest gain since Aug. 9. Shares of the San Jose, California-based company advanced 18 percent this year before today.
Chief Executive Officer John Donahoe is expanding beyond EBay’s online auction roots with more offerings for mobile devices, aimed at consumers shopping on phones instead of traditional computers. Mobile-payment volume will surge 75 percent to $7 billion this year, EBay has projected, helping solidify PayPal’s role as the company’s fastest-growing unit.
“PayPal continues to be a star,” Colin Gillis, an analyst at BGC Partners LP in New York, said in an interview. “The traction in the marketplace has been slow and steady.”
First-quarter revenue climbed 29 percent to $3.28 billion, EBay said yesterday in a statement. That beat the $3.2 billion average analyst estimate compiled by Bloomberg. Profit excluding some items was 55 cents a share, compared with the average 52- cent prediction.
Second-quarter revenue will be $3.25 billion to $3.35 billion, the company said, compared with an average analyst projection of $3.36 billion. EBay forecast profit excluding some items of 53 cents to 55 cents a share, versus a 54-cent estimate compiled by Bloomberg.
Sales of fixed-price merchandise grew 18 percent in the first quarter, an acceleration from the preceding period, spotlighting EBay’s success in decreasing its reliance on auctions, said Michael Graham, an analyst at Canaccord Financial Inc. in New York.
“The auction format has not been growing, but it was still pretty large in the mix,” Graham said in an interview. “Now we’re starting to see that fixed-price general merchandise volume is growing very nicely. It’s starting to impact the overall growth.”
PayPal revenue surged 32 percent to $1.31 billion in the first quarter, while volume climbed 24 percent to $33.9 billion. PayPal had 109.8 million active accounts at the end of the first quarter, up 12 percent from a year earlier.
EBay promoted David Marcus to lead PayPal last month after Scott Thompson, the former head, left to become the CEO at Yahoo! Inc. earlier this year. PayPal accounted for 43 percent of sales last year, up from 24 percent five years ago.
Marcus joined EBay in August after its $240 million purchase of Zong Inc., a company he founded. The appointment will bring “startup energy” to PayPal, which was acquired for about $1.18 billion in October 2002, Donahoe said last month.
PayPal Here, a card reader for smartphones, is the first product spearheaded by Marcus as he works to expand mobile business. The device enables phones to accept payments from Visa Inc. (V), MasterCard Inc., Discover Financial Services and American Express Co. and encrypts account information so credit-card data doesn’t pass through to the phone.
Downloads of EBay’s mobile apps surpassed 12 million in the first quarter, and have reached 78 million since their introduction in 2008, the company said.
In another effort to expand beyond traditional e-commerce, PayPal now has checkout terminals inside Home Depot Inc. (HD)’s U.S. stores. EBay is under contract with several other retailers and partnerships will follow in the second half of 2012, Donahoe said yesterday.
Brick and Mortar
Moving offline will give EBay a chance to expand beyond e- commerce sales, which accounted for just 4.8 percent of total U.S. retail sales in the fourth quarter, according to the U.S. Department of Commerce.
“Offline is an enormous market,” Donahoe said in an interview. “All we have to do is capture a very small percentage of it and it has a big impact on our company. If we capture 2 percent of offline payments, that’s another PayPal.”
The company is also pushing other financial products, including Bill Me Later, which lets customers pay in installments. Because PayPal is able to borrow at near-record- low interest rates and make money on the premium it charges to customers, the business is turning into a profit hub, Gillis said.
While it will take time for traditional PayPal customers to adapt to newer offerings, the unit will still benefit as EBay’s total merchandise sales grow, said Herman Leung, an analyst at Susquehanna International Group in San Francisco who has a neutral rating on EBay.
“Even though it’s lower-margin, the view is that it’s all incremental dollars to the business,” he said, referring to online payments.
Still, new offerings in mobile payments and retail checkout lines may not catch on as quickly as expected if too many consumers limit shopping to essentials amid a sluggish U.S. economy, said Peter Sorrentino, a portfolio manager at Huntington Asset Advisors in Cincinnati.
“We’re still forecasting growth, but at a rapidly decelerating rate,” said Sorrentino, who helps oversee $14.5 billion in assets, including EBay shares. “We think the consumer has been spending out of savings again, so we’re forecasting a slowdown in consumer activity, especially with higher fuel prices. When you prioritize, it’s grocery store, gas pump. EBay is purely a discretionary spending item.”
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