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eBay Q2 Profits Up 22 Percent

eBay
Driven by robust growth in its payments business, e-commerce giant eBay (NASDAQ: EBAY) reported solid second-quarter earnings today, posting a 22 percent profit increase with numbers toward the high end of analysts' consensus.

eBay reported quarterly revenue of $2.2 billion, up by 20 percent ($361 million) over revenue of $1.8 billion during the same time last year.

Net income was $460 million, or 35 cents per diluted share. On a non-GAAP basis, eBay claimed a profit of $568 million, or earnings per share of 43 cents, which topped both analysts' consensus and its own guidance by 2 cents a share.

“This was a strong quarter and we are very pleased with the performance of the portfolio, particularly with the growth generated by PayPal,” eBay President and CEO John Donahoe said in a statement. “We have made bold moves across the eBay marketplace to accelerate long-term growth. We remain confident in our strategies to improve the customer experience as we manage in an uncertain economic climate."

The second quarter, the first full period with Donahoe at the helm, has been a rocky one. The "bold moves" Donahoe refers to began in late January, when he announced a series of policy changes that have angered many individual sellers. While aimed at improving the buying experience, eBay's changes to its fees and feedback mechanisms have prompted a series of seller strikes. Even amid the ongoing seller unrest, new marketplace listings were up 19 percent over the same period last year.

"In our marketplaces business we feel good about our overall results as we implement changes designed to make eBay more competitive," Donahoe said on a conference call with financial analysts. "We're delivering strong results in a tough economic climate while driving the changes necessary to deliver a strong future for eBay."

eBay's policy changes have been aiming to give more incentives to customer-friendly sellers, those who deliver what they promise, offer fair prices and receive positive feedback. In doing so, eBay has been shifting more of its business away from the auction model in favor of fixed-price listings, to the great ire of many individual sellers who make their living on the site.

In that spirit, eBay quietly partnered with Buy.com earlier this year, flooding its marketplace with listings from the e-commerce heavy as part of its effort to improve the reliability and value of its shop.

That partnership could explain some of the robust growth in listings (possibly offsetting the defection of disgruntled Power Sellers).

Donahoe explained that going forward, eBay is going to be more interested in what he called "buyer-retention" metrics, such as the total number of goods sold. Particularly amid a worsening economic downturn, eBay will not hang its hat on the final price people pay for goods.

"A slowing economy, particularly in the U.S. and UK, has caused consumers to trade down to lower-priced items," Donahoe said.

Then also eBay continues its efforts to diversify its business lines. "Two years ago, 66 percent of our revenues were associated with marketplaces," compared with 57 percent today, said Bob Swan, eBay's chief financial officer.

Net revenue for PayPal increased 33 percent year-over-year to $602 million for the second quarter.

Skype, the Internet phone service that eBay bought in October 2005, posted a 51 percent year-over-year growth, generating $136 million in quarterly revenue. Skype ended the quarter with 338.2 million registered users.

eBay offered third-quarter net revenue guidance of $2.1 billion to $2.15 billion. The company is projecting earnings of 39 cents to 41 cents per share in that period, and raising slightly its annual guidance to $1.72 to $1.77 per share.