EBay Forecasts Sales Short of Estimates After Data Breach

EBay Inc. gave a sales outlook for the third quarter that fell short of estimates as the biggest online marketplace struggles to attract more users after a data breach and changes to Google Inc.’s search engine.

Revenue in the current period will be $4.3 billion to $4.4 billion, the company said in a statement yesterday. Profit before certain items will be 65 cents to 67 cents a share. Analysts on average projected sales of $4.42 billion and profit of 70 cents, according to data compiled by Bloomberg.

EBay Chief Executive Officer John Donahoe, already fending off competition from Amazon.com Inc. and other rivals, faced new challenges in attracting customers during the quarter. EBay asked users in May to change their passwords after hackers gained access to login information, and Google changed its search software, curbing some of the traffic to EBay’s website from potential shoppers.

“I think investors expected headwinds,” said Colin Gillis, an analyst at BGC Partners who has a buy rating on EBay’s shares. “It’s not symptomatic of the business -- that the wheels are coming off.”

EBay said profit excluding certain costs in the second quarter was 69 cents a share, beating the average prediction for 68 cents.

The shares of EBay rose less than 1 percent to $51.03 at the close in New York, leaving them down 7 percent this year.

New Initiatives

Net income climbed 5.6 percent to $676 million, or 53 cents a share, from $640 million, or 49 cents, a year earlier. Second-quarter sales rose 13 percent to $4.37 billion, the San Jose, California-based company said, falling short of the average analyst estimate of $4.39 billion.

Sales in EBay’s PayPal payments unit expanded by 20 percent in the latest quarter, compared with a 19 percent pace in the first quarter. Growth in the marketplaces business slowed to 9 percent from 10 percent in the prior period.

EBay sought to regain its footing after defusing a proxy battle with activist shareholder Carl Icahn in April. The privacy breach and the changes at Google hampered results, according to Chief Financial Officer Robert Swan. Google’s search changes harmed some e-commerce providers, including EBay. Google, by far the most popular search engine, said in May that the changes affected about 7.5 percent of English queries, without comment on its impact on EBay specifically.

“You take a couple of body blows,” Donahoe said in an interview yesterday. “You get back up and you fight.”

EBay invested in targeted marketing to get folks to return to the service, especially in Europe, Donahoe said. The company should be able to bounce back from the hacking and search issues by the end of the year, he said.

Long Term

Donahoe said he’s investing for the long-term and seeking Web shoppers in fast-growing economies in Latin America. In June, EBay’s PayPal unit unveiled a global initiative, introducing services to help merchants find new markets and ways to sell their wares overseas, from China and Japan to Argentina and France.

“We’re still working on ways to continue to grow our core EBay business,” Donahoe said. “Commerce is not a winner-take-all market.”

Still, growth won’t come easily. Sales by retailers on EBay grew 12 percent in June, while those at Amazon climbed 34 percent, according to researcher ChannelAdvisor Corp.

“They’re facing intense competition from Amazon,” said Victor Anthony, an analyst at Topeka Capital Markets Inc. who has a hold recommendation on EBay. “It’s going to be a tough slog for them over the next several years.”

Sotheby’s Deal

EBay unveiled a deal with Sotheby’s earlier this week to make sought-after artwork, antiques and collectibles available online. The New York-based auctioneer will be featured on a redesigned site, offering items in 18 categories. The companies are also planning to sell in other ways, including live auctions from Sotheby’s locations.

“EBay has a tailwind from the global growth of e-commerce,” said Gil Luria, an analyst at Wedbush Securities Inc. who recommends buying the stock. “We’re at a point where most of growth in retail is coming online.”

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