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eBay Sees Revenue Drop Ahead

eBay Earnings
eBay cut its full-year revenue forecast as its online auctions business slows down, sending its shares down 6.3 percent.

The stock decline in after-hours trade extended a 14 percent drop in the regular session on Wednesday, fueled by investor fears that the company would be hit hard by a global recession.

"It's really the guidance I think is disappointing," said Jeffrey Lindsay of Sanford C. Bernstein.

Lindsay said eBay's (NASDAQ: EBAY) forecast for the fourth quarter, its strongest of the year, sent a bad signal to investors over how it will perform in 2009.

eBay reported a third-quarter net profit of $492 million, or 38 cents per share, from a year-earlier loss of $936 million, or 69 cents per share, when it took a $1.4 billion write-down for its Web telephone service Skype.

Total revenue rose 12 percent to $2.12 billion.

On an adjusted basis, earnings were 46 cents per share. That was above the average Wall Street estimate of 41 cents per share, according to Reuters Estimates.

eBay also said the total value of all goods sold on its site, a metric known as gross merchandise volume (GMV), fell by 1 percent from a year ago -- the first time it has ventured into negative territory.

"One of the biggest surprises here was the GMV growth, which turned negative for the first time ever," said Jefferies analyst Youssef Squali. "That's not good and I would suspect that, combined with the lower guidance, is sending the stock price down after hours."

To counteract slower growth in auctions, which comprise the bulk of its business, eBay has lowered upfront listing fees and issued coupons to lure buyers who have gravitated to competitors like Amazon.com (NASDAQ: AMZN). The company said last week it would cut 10 percent of its work force.

In the third quarter, revenue grew 4 percent in eBay's main marketplaces business, which includes auctions. Revenue rose 27 percent to $597 million at PayPal and rose 46 percent to $143 million at Web-based call service Skype.

For the fourth quarter, San Jose, Calif.-based eBay expects adjusted earnings per share of 39 cents to 41 cents on revenue of $2.02 billion to $2.17 billion. For the full year, eBay expects revenue of $8.53 billion to $8.68 billion, below its previous estimate of $8.8 billion to $9.05 billion.

Shares of eBay trade at over 10 times projected 2008 earnings, at a discount to Google (NASDAQ: GOOG) at nearly 20, Yahoo (NASDAQ: YHOO) at 32 and Amazon.com at 41.

eBay shares fell to $14.37 in extended trade after closing at $15.33 on NASDAQ.