eBay Misses, Hits, Hunts For More in China

Online auction provider eBay recorded another record
quarter. Profits soared by 44 percent to $205.4 million (over last
year’s $142 million profit) in the last three months of 2004, and the company said it
would invest $100 million to expand its presence in China’s white-hot online market.

But the results could not keep investors happy after earnings per share
came in at 33 cents (30 cents with all charges counted, compared to 21 cents
per share during last year’s fourth quarter), below analysts’ expectations
by a penny. Shares of the online auction player tumbled in after-hours
trading by about 10 percent.

Revenues were $935.8 million in the quarter, also up by 44 percent from
the $648.4 million year-over-year. The
currency exchange rate of the U.S. dollar against the Euro and other
currencies factored into the results, as did strong growth across major
regions such as China, the U.K., France, Australia and Spain.

eBay’s guidance also made some investors glum. The company, which
recently raised fees for members, said it expects first-quarter earnings of
between 34 and 35 cents a share and sales in the range of $1.01 to $1.03
billion, both below forecasts. The results had analysts asking eBay
where else the hot-growth company could find growth.

During a conference call, eBay officials said the company would invest up
to $100 million in China (which represents about 2 percent of its global
revenue) in order to build out its competitive presence there.

“We think China could be the biggest e-commerce opportunity anywhere,”
said Meg Whitman, eBay’s CEO, during the call. Because China is coming of
age in a more developed Internet industry, it also has the benefit of 20-20
hindsight about the mistakes that many online companies made leading up to
and after the dot-com bubble burst, she added.

“Money is pouring in, and the competitive landscape is dynamic,” she said of
the opportunities in the country, where the middle class is estimated to be between
200 million and 400 million strong. “They’re becoming increasingly affluent. The
net result is that it’s a large opportunity. The goal is to expand
e-commerce there,” Whitman said.

Still, officials noted that the China region is not yet profitable for eBay. But they expect that to change, due to the way growth is expanding. Other growth
plans include expanding its PayPal presence in China, albeit a bit more
slowly, and increasing its merchant services overall.

Despite missing expectations, eBay had some bright spots. It brought in
3.9 million new users in the fourth quarter. Overall, sales were helped by
strength across all categories, but especially with computers, collectibles,
toys and entertainment devices.

It was also a pretty good year for eBay. Gross Merchandise Volume, which
is the total value of all successfully closed listings on eBay’s trading
platforms, hit a record $34.2 billion during 2004, which represents a 44
percent year-over-year increase from the $23.8 billion reported in the full
year 2003.

The company’s consolidated net revenues totaled $3.27 billion, a 51
percent improvement from the $2.17 billion reported in the full year 2003.
The company also announced a two-for-one stock split, effective Feb. 16th.

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