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EBay Forecasts 2011 Revenue That May Exceed Estimates

EBay Forecasts Full-Year Revenue That May Surpass Estimates
Signage stands outside EBay Inc. headquarters in San Jose, California. Photographer: Tony Avelar/Bloomberg

Jan. 19 (Bloomberg) -- EBay Inc., owner of the largest e-commerce market, said sales this year may rise more than analysts estimated, signaling progress on a turnaround effort at its main site and growing demand for the PayPal payment service.

Sales in 2011 will be as high as $10.6 billion, the San Jose, California-based company said today in a statement. Excluding stock-option costs and other expenses, profit will be $1.90 to $1.95 a share. Analysts in a Bloomberg survey projected, on average, revenue of $10.2 billion and earnings of $1.86. Shares gained in extended trading.

Chief Executive Officer John Donahoe, two-thirds of the way through a three-year campaign to reignite sales growth, has overhauled the site and taken an early lead in mobile commerce. Today’s results suggest he’s making headway. More users are also flocking to PayPal when they make online purchases.

“PayPal is a tremendous business and will continue to grow,” said James Dobson, a Boca Raton, Florida-based analyst at Benchmark Co. “It really comes down to this Marketplace division. Is it going to be able to grow in line or better than the e-commerce market? The guidance gives people a glimmer of hope that that’s possible this year.”

EBay rose 3.3 percent in extended trading after earlier slipping 35 cents to $29.10 at 4 p.m. New York time on the Nasdaq Stock Market. The stock rose 18 percent last year.

Quarterly Boost

At the high end of EBay’s forecast for the year, sales will rise 16 percent, compared with 4.9 percent in 2010 and 2.2 percent in 2009.

Revenue this quarter may also top analysts’ predictions. Sales will be $2.4 billion to $2.5 billion, and per-share earnings, excluding costs, may be 44 cents to 46 cents a share, EBay said. That compares with $2.43 billion in revenue and earnings of 45 cents, the average estimates of analysts surveyed by Bloomberg.

Sales in the fourth quarter rose 5.2 percent to $2.5 billion and earnings, excluding costs, rose to 52 cents a share. That compares with predictions for $2.49 billion in sales and earnings of 47 cents, the average of analysts’ projections.

EBay took advantage of low U.S. interest rates by selling $1.5 billion of bonds last quarter to build its war chest and repurchase shares. It’s also used cash to buy three companies in the past two months and beef up its mobile team.

Mobile Shopping

EBay is also benefiting from demand for its mobile applications. Gross sales through smartphones and tablets will double to $4 billion this year after more than tripling in 2010, the company said. EBay, which according to BGC Partners leads the mobile commerce market, hasn’t said how much its mobile apps have boosted overall sales rather than simply giving existing users another way to shop.

“Our focus to date has been on improving the core consumer experience, particularly for our existing users,” Donahoe said in an interview. “At some point I will feel it’s good enough that I want to reach out to the inactive users and the people who haven’t been on EBay for a while. That time will happen in the second half of 2011.”

PayPal again was a growth driver for EBay, with revenue from the division rising 22 percent to $971 million last quarter. The unit accounts for about 39 percent of EBay’s revenue and will eventually be larger than the company’s e-commerce sites, Donahoe has said.

PayPal ‘Critical’

“PayPal is the most critical part of the story still,” said Brian Blair, a New York-based analyst at Wedge Partners Corp. “It’s where all the growth has been.”

At the same time, startups such as Square Inc. are nipping at its heels. MasterCard Inc., Visa Inc. and American Express Co. spent almost $3 billion last year to buy net-based payment processors. PayPal’s business could also be damaged if a proposed U.S. law defines PayPal as a payment card network, resulting in caps on fees the business can collect. That likelihood is low, according to Credit Suisse.

EBay’s quarterly results follow a record holiday for online retailers. Online sales rose 12 percent to $32.6 billion, reaching a high for the two-month holiday shopping season, according to Reston, Virginia-based researcher ComScore Inc.

Consumer demand is likely to carry through the year, benefiting EBay, according to Fred Moran, an analyst at Benchmark Co. He predicts online sales, excluding travel, will grow 10 percent in 2011.

“While the pace of EBay’s marketplace turnaround efforts remains choppy, we continue to believe the company is on track to improve growth,” said Shawn Milne, an analyst at Janney Capital Markets.

(EBay hosted a conference call at 5 p.m. New York time to discuss the results. To listen, go to LIVE <GO>).

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

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net.

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