eBay Earnings Call: Low Expectations

eBay will issue first calendar quarter earnings tomorrow after the close of trading on Wall Street, and investors will be looking for quite a bit of information on how the online marketplace is faring, particularly after news of an Initial Public Offering for its Internet phone service Skype, the purchase of South Korea’s Gmarket and changes to its e-commerce strategy.

Most investors won’t have high expectations, and therefore, if the news is bleak, won’t be unpleasantly surprised, Steve Weinstein, research analyst at Pacific Crest Securities, told InternetNews.com.

“It does appear that e-commerce had a solid Q1, or at least better than anyone thought it would, so that could help eBay’s numbers,” he said. “But for the stock to move, there has to be a major reacceleration of their core business, and there’s no real expectation for that to happen anytime soon.”

Meanwhile, eBay (NASDAQ: EBAY) has been busy on three fronts: trying to capitalize on Skype; expanding its overseas marketshare; and adjusting its e-commerce policies to improve sales in the online marketplace.

eBay said last week it plans to take its Skype Internet telephony unit public, with an IPO planned for the first half of 2010. The move could mark the final chapter in eBay’s dealings with Skype, the Voice over IP (VoIP) service it purchased in 2005 for $2.6 billion — and has been struggling to figure out what to do with it ever since.

While Skype has proven a rousing success — the unit took in revenues of $551 million in 2008, up 44 percent from 2007 — eBay never achieved a way to leverage the VoIP firm to help its core auction business.

The IPO developments came after eBay told analysts earlier in the year that it would no longer look at Skype as a complementary service for e-commerce, but rather as its own entity poised todouble revenues by 2011.

eBay also grabbed headlines last week with news that it is buying South Korean online auctioneer Gmarket for $1.2 billion in cash in an effort to tap overseas growth potential.

The online marketplace agreed to buy 67 percent of Gmarket from investors, including Yahoo, and will make a offer of $24 a share for the rest, according to eBay’s statement.

eBay plans to combine Gmarket with its South Korean unit Internet Auction Co., which is anticipated to double its sales there while shoring up its position to continue expansion in Asian markets.

Righting the ship

These developments, along with recent changes designed to improve its e-commerce experience, come at a time when eBay’s strategy is to steer away from its genesis as an auction platform to a more diversified online marketplace focusing on overstock sales and more fixed-price sales after losing market share to rival Amazon (NASDAQ: AMZN).

In its report last week, Barclays Capital came out with a tepid reaction to eBay’s recent marketplace policy changes and Skype IPO, stating that while the developments were “positive….we remain cautious on the stock given the continued structural challenges facing the core marketplace biz.”

The report goes on to say “Given current market conditions, we believe that the IPO announcement may be more about posturing on the part of eBay before an outright sale. However, we believe that a Skype IPO/sale could provide upside to our overall valuation of eBay.

“Significant Marketplace changes include: a new dispute resolution process, smart FAQs, introduction of multi-quantity fixed price listings, new product and item pages, & a package tracking feature. We believe that these changes are steps in the right direction, but more measures may be needed to have a more significant effect on the platform.”

As for tomorrow’s news, investors are likely hoping they won’t hear more grim financial reports. eBay reported its first year-to-year revenue drop in January, with fourth quarter earnings down 31 percent from the same period a year ago.

eBay’s total revenue of $2.04 billion for that quarter was down six percent, or $145 million, from 2007. Analysts polled by Thomson Reuters at the time were expecting revenue of $2.1 billion.

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