EBay Revenue Forecast Trails as Growth Abroad Slows

EBay Inc. tumbled the most in almost two years after the company’s revenue forecast fell short of analysts’ estimates, as economic weakness in Europe and Asia restricts growth.

The shares fell 6.7 percent to $53.52 at the close in New York, the biggest decline since August 2011. Third-quarter sales will be $3.85 billion to $3.95 billion, the company said in a statement yesterday. Analysts on average were projecting revenue of $3.97 billion, according to data compiled by Bloomberg.

EBay Chief Executive Officer John Donahoe has been seeking growth abroad, adding staff in emerging markets, such as Russia and China. In 2012, 27 percent of marketplaces revenue and more than 50 percent of PayPal’s sales came from international operations. EBay is predicting 2013 revenue and profit to be at the lower end of full-year guidance, as e-commerce growth rates in Europe and Korea slow and currencies weaken against the U.S. dollar.

“Last year, overall economic growth was down in Europe, retail sales were down, but e-commerce growth rates stayed constant,” Donahoe said in an interview. “This year, overall economic growth is little bit slower than last year, retail sales are a little bit slower and e-commerce growth rates have also come down a little bit.”

Economic Headwinds

Second-quarter revenue came in at $3.88 billion, just shy of analysts’ prediction for $3.89 billion. The company forecast 2013 revenue to be $16 billion to $16.5 billion and earnings, excluding some items, to range from $2.70 a share to $2.75 a share.

Online commerce growth in Germany and the U.K. is slowing, Donahoe said, which is coupled with Korean e-commerce growth rates that declined by more than 50 percent compared with last year. Currencies in those areas, which are predicted to weaken against the U.S. dollar, have the potential to weigh on earnings in the second half of the year, the company said.

The euro is projected to decline 3.6 percent against the dollar in the fourth quarter, while the pound is estimated to decrease 2.7 percent, data compiled by Bloomberg show. The South Korean won is predicted to decline by 2 percent in the same period.

Dollar Impact

“When the dollar strengthens, it means you lost a little bit of your revenue to the strength of the dollar,” said William Smead, chief executive officer of Smead Capital, which holds 495,525 shares of EBay as part of more than $575 million under management. “That’s probably how things are going to be for two, three, four years -- certainly if the U.S. economy keeps coming back. We’re not bothered by it.”

Second-quarter profit before some costs was 63 cents a share, matching the average analysts’ projection. Net income fell 8 percent to $640 million. The percentage EBay takes from transactions declined to 3.79 percent from 3.94 percent a year ago, tempering profit, as it offered international customers cash coupons to spur more activity on the site.

Higher taxes may also weigh on net income this year, as weakness in markets overseas prompt more business in the U.S., where the company is subject to a higher rate, the company said.

User Gains

Revenue in EBay’s marketplaces business, which includes both auctions and fixed-price sales, climbed 10 percent to $2 billion in the latest quarter. The number of users increased by 14 percent to 120 million.

At PayPal, revenue rose 20 percent to $1.6 billion in the second quarter. The unit gained 4.7 million registered users, bringing the total to 132 million. Net payment volume, or the total value of transactions processed, rose 24 percent to $43 billion.

“New users drive future results and active user growth has been accelerating,” Colin Gillis, an analyst at BGC Partners LP in New York, wrote in a note to clients. “That’s the standout metric.”

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