EBay Inc. fended off an attack from activist shareholder Carl Icahn, yet speeding up sales growth is proving to be a tougher fight.
The shares fell 5 percent today, their steepest drop since July, after the biggest online marketplace said yesterday second-quarter revenue will be $4.33 billion to $4.43 billion, potentially trailing the average analyst projection of $4.4 billion compiled by Bloomberg. EBay also posted a first-quarter net loss after taking a $3 billion tax charge to repatriate foreign earnings, boosting available U.S. cash by $6 billion.
Chief Executive Officer John Donahoe has been seeking to shore up his company’s e-commerce business by investing in mobile and other services to boost user traffic. Moving overseas profits back to the U.S. may give EBay more room to increase spending to help fend off rivals like Amazon.com Inc. as well as startups looking to take business from its PayPal payments unit.
“There’s a lot of competition,” said Victor Anthony, an analyst at Topeka Capital Markets Inc., who rates the stock a hold. “Amazon is a huge challenge for EBay.”
EBay shares declined to $51.83 at the close in New York. The stock had gained 3.2 percent in the 12 months through yesterday, underperforming both Amazon and the Standard & Poor’s 500 Index.
In the first quarter, the San Jose, California-based company had a loss of $2.3 billion, or $1.82 a share. That included the tax charge to facilitate repatriation of $9 billion in overseas earnings that weren’t previously subject to U.S. taxes, EBay said yesterday in a statement.
The decision was a surprise at a time when other large technology companies, such as Apple Inc. and Microsoft Corp., have avoided taxes by keeping profits parked overseas. While EBay may use the money to help with potential acquisitions, there is no big domestic deal pending, Donahoe said.
“We haven’t committed to repatriate any of the cash, so we’ll make that decision as we go along,” he said in an interview. “It simply gives us greater financial flexibility.”
The move also doesn’t preclude the company from raising debt, he said, as Apple did this week. EBay, which added $5 billion to its stock-buyback plan earlier this year, could also use the cash to repurchase shares. EBay said it ended the first quarter with a total of $11.9 billion of cash, equivalents and non-equity investments, including about $2.2 billion in the U.S.
First-quarter sales rose 14 percent to $4.26 billion, the company said. That compares with the average analyst estimate of $4.23 billion. Excluding certain costs, profit in the first quarter was 70 cents a share, higher than the average projection of 67 cents. In the year-earlier period, net income was $677 million, or 51 cents.
Revenue in EBay’s marketplaces business, which includes auctions and sales of fixed-price items, rose 10 percent to $2.16 billion in the first quarter. That was slower than the 12 percent growth the business posted in the fourth quarter.
At PayPal, the company’s digital-payments business, revenue increased 19 percent to $1.85 billion. PayPal’s take rate, or the commission it collects from each transaction, was 3.55 percent in the quarter, down from 3.77 percent in the same period last year.
Second-quarter profit before certain items will be 67 cents to 69 cents a share, the company said, compared with an average estimate of 70 cents.
“There’s not a lot to get excited about,” said Gil Luria, an analyst at Wedbush Securities Inc., who recommends buying the stock. “They beat, but they didn’t raise the guidance for the year -- and guided a little low for Q2.”
Last week, Amazon reported first-quarter revenue growth of 23 percent. The Seattle-based company has been pouring cash into its warehouses for faster shipments and other services for sellers and customers. In March, retailers on Amazon saw sales rise 26 percent from a year earlier, while those on EBay posted a gain of 18 percent, according to e-commerce software provider ChannelAdvisor Corp.
EBay’s PayPal business was at the center of the dispute with Icahn that was disclosed in January. The e-commerce company said Icahn had bought a stake and was calling for a spinoff of PayPal, saying the unit’s growth was held back by being part of the larger company.
Donahoe insisted EBay should remain intact, as both businesses benefited from the union. Within 10 days of the disclosure of Icahn’s stake, Donahoe said he traveled to see at least 17 of EBay’s top 20 investors and spoke with about a dozen more. EBay acquired the payments business, which accounts for about 40 percent of revenue, in 2002 for $1.5 billion.
The conflict grew more personal as Icahn pressed his case, with the activist attacking EBay’s corporate governance and singling out EBay directors Marc Andreessen and Scott Cook, accusing them of conflicts of interest. Earlier this month, after outreach by Donahoe himself, Icahn backed off and dropped his campaign. EBay agreed to add an independent director, CVS Caremark Corp. Chairman David Dorman, to its board.
Throughout the process, Donahoe wanted only a handful of executives to deal with the proxy battle, he said in an interview earlier this month. That helped others, such as PayPal President David Marcus, stay focused on the business as the company rolls out new products and woos shoppers. He also asked EBay’s workforce of about 35,000 employees to keep concentrating on their jobs and not get distracted by the Icahn drama.
“Even though we had what could have been a very distracting event in this proxy fight, our organization stayed focused and executed a strong quarter,” Donahoe said.