eBay Still Tops Expectations

E-commerce giant eBay saw its revenues slip in the first quarter, but nonetheless turned in financial results that beat analysts' modest expectations.

After the market closed Wednesday, eBay (NASDAQ: EBAY) reported earnings of 39 cents per share on $500 million in net income, excluding one-time items. That figure was down from 42 cents on $560 million in the same quarter last year, but ahead of the 33 cents analysts polled by Thomson Reuters had been expecting.

Overall, eBay posted revenues just over $2 billion, down from $2.2 billion last year, but a tick ahead of the $1.9 billion analysts were expecting.

eBay attributed the declining revenues to a weakened U.S. dollar and the continuing macroeconomic climate that sapped sales in the company's core marketplace business, where year-to-year revenues dropped 18 percent. Nevertheless, President and CEO John Donahoe touted the company's performance at a time of flux in both eBay's business and the broader economy.

"We delivered solid Q1 results, exceeding expectations in a tough economy," Donahoe said on a conference call with analysts. President and CEO John Donahoe said in a statement. "The bottom line is that we're seeing a marketplace business in transition," he said, emphasizing the company's plans to refocus itself on its core e-commerce and payments businesses it outlined at its analysts' day in March.

eBay's payment services division, driven by PayPal, posted net revenues of $643 million, an 11 percent increase over the prior-year quarter. PayPal now accounts for 32 percent of eBay's overall revenue. In the meantime, the company said it is moving swiftly to integrate the Bill Me Later service it acquired last year.

At its analysts' day, eBay said it aimed to double PayPal's revenue by 2011. The company also detailed plans to move into a secondary retail market, snapping up unwanted inventory from retailers to sell on the Internet.

eBay has been flush with news recently. The company recently announced plans to spin off Internet phone service Skype in an IPO sometime in the first half of 2010. Analysts welcomed eBay's plans to shed Skype, a firm it acquired in 2005 for $2.6 billion but has proven a clumsy fit for the e-commerce giant.

Additionally, StumbleUpon, a Digg-like social recommendation site eBay acquired in 2007, recently said it was breaking away from the company to resume life as a venture-backed startup.

Three days later, eBay announced plans to pony up $1.2 billion to acquire South Korean online auction leader Gmarket. At its analysts' day, eBay identified the Asian market as a key driver of its future growth.

But to Citibank analyst Mark Mahaney, those moves are a sideshow compared to the fundamental problems facing eBay's primary business.

"In the core marketplace business, which is still north of 60 percent of their overall profits we haven't had a lot of major news," Mahaney said in a recent interview.

"What they need there is a lot of product innovation, probably some really aggressive moves to entice buyers to come back to eBay, and those buyers seem to be shedding away.