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eBay Blows Past Earnings Estimates

eBay Earnings

eBay's (NASDAQ: EBAY) transition from a pure online auction site to more of a wholesale liquidator and transaction-processing company paid nice dividends in its fourth quarter.

The company reported adjusted earnings of $585.8 million, or $0.44 a share, on sales of $2.37 billion -- a 16 percent improvement from the year-ago quarter.

eBay shares closed off $1.03, or 4 percent, to $22.23 ahead of the earnings release but surged up $1.27, or 6 percent, to $23.47 in after-hours trading.

Analysts surveyed by Thomson Reuters predicted the San Jose, Calif.-based company would return adjusted earnings of 40 cents a share on sales of $2.28 billion.

Excluding one-time charges, eBay earned $1.35 billion, or $1.02 a share, on a GAAP basis in the quarter. Last quarter, eBay pocketed $349.7 million, or $0.27 a share, on sales of $2.24 billion.

For the full year, eBay reported a profit of $2.1 billion, or $1.58 a share, on sales of $8.7 billion.

Company officials credited the upside surprise to "excellent" growth from its PayPal and StubHub units as well as a positive impact from foreign currency rates.

"In the fourth quarter, we completed the sale of Skype and now are focusing our energies on our payments and marketplaces units," CEO John Donahoe said in a conference call with analysts after the bell. "We had a strong fourth quarter, particularly internationally, with both businesses accelerating sharply."

Donahoe told analysts that eBay's decision to open up its PayPal platform to third-party developers is already paying off, particularly in the Asia-Pacific market where gross merchandise volume increased 50 percent from the year-ago period.

"PayPal is leveraging this global footprint to send and receive payments across borders," he said. "We became the first major payment platform to open up to third-party developers in November and so more than 2,000 have signed up."

Donahoe said total items sold in the quarter improved 11 percent globally, with exports from China alone doubling to more than 15 million transactions.

"We improve value, selection and trust and are turning around this business," he said. "We're moving new types of merchandise at a new velocity."

iPhone, PayPal, and a look ahead

Donahue told investors to expect more improvements and features from its mobile technology group in 2010.

He said eBay's iPhone application has been downloaded more than 7 million times and generated more than $600 million in sales, up 200 percent from last year.

The company's PayPal division processed more than $20 billion in totally payment volume in the quarter and that gross merchandise volume -- a key indicator of the company's core online business -- improved for the third consecutive quarter.

eBay also generated $770.6 million of operating cash flow and $597.7 million of free cash flow during the quarter.

More important, particularly for investors, eBay upped its guidance for the first quarter of 2010. It now predicts sales between $2.1 billion and $2.2 billion and earnings of between $0.39 and $0.41 share, modestly above current Street estimates calling for earnings of $0.39 a share on sales of $2.14 billion.

For the full year, eBay is forecasting sales of between $8.8 billion and $9.1 billion, an improvement of between 9 percent and 12 percent, excluding the 2009 impact of the Skype sale.

It's also expecting earnings of between $1.63 and $1.68 a share, up between 11 percent and 14 percent from 2009.

By selling off the Skype unit, eBay was able to realize another $1.4 billion in interest and other income in the quarter. eBay still retains a 30 percent interest in the VoIP service.

eBay's PayPal unit reported $795.6 million in sales in the quarter, a 28 percent jump from the year-ago quarter. The total payment volume of $21.4 billion -- up 34 percent increase from the year-ago period -- served as a testament to consumers' increased spending during the holiday season.

The marketplaces unit, which includes the auction site as well as Shopping.com, StubHub and Kijiji, posted sales of $1.5 billion in the quarter, up 15 percent from last year.

eBay officials said the marketplaces unit benefited primarily from strong growth in its fixed-price format and strong international sales which accounted for 60 percent of all transactions.

Ahead of the earnings report, equity research firmMLK Partners issued a research report in which it predicted U.S. e-commerce sales would surge 16.7 percent in the first half of 2010 and 13.5 percent for the full year—a drastic improvement from the 0.3 percent decline it endured in 2009.

Donahue added that "in most of our major markets, we grew at or above e-commerce growth rates throughout the fourth quarter."

eBay shares peaked at a 52-week high of $25.80 in October after tumbling to a low of $9.91 a share as competitors -- particularly Amazon.com (NASDAQ: AMZN) -- chipped away at its total transaction and merchandise volumes.

Seventeen of the 32 analysts covering the stock maintain a "hold" recommendation while nine maintain a "strong buy" rating and eight rate it a "buy." One analyst has affixed an "underperform" rating.

Update adds comments from today's earnings call.

Larry Barrett is a senior editor at InternetNews.com, the news service of Internet.com, the network for technology professionals.