eBay's Heavy Adjustment: Fool by Numbers

On Oct. 17, online auctioneer eBay (Nasdaq: EBAY  ) released third-quarter earnings for the period ended Sept. 30.

• For more color to the numbers, read our earnings Take.
• eBay took a $1.39 billion goodwill impairment charge this quarter, to account for the failure of the Skype acquisition to add the value it was expected to. Without that non-cash item, earnings would have landed at $455.3 million, or $0.34 per share, for a 24.1% net margin.
• That charge isn't all bad. It doesn't hurt cash flow figures at all. But it's a before-tax item that helped reduce the tax load this quarter by 14 percentage points.
• All three reportable segments grew sales over last year -- including Skype, which nearly doubled its sales and generated a profit if you ignore the impairment charge.
• Today's price-to-earnings ratio started out at 317 times GAAP earnings, or 33.4 times a pro forma earnings figure.

(Figures in millions, except per-share data)

Income Statement Highlights

	Q3 2007	Q3 2006	Change
Sales	$1,889.2	$1,448.6	30.4%
Net Profit	($935.6)	$280.9	N/A
EPS	($0.69)	$0.20	N/A
Diluted Shares	1,354.8	1,426.1	(5%)

Get back to basics with the income statement.

Margin Checkup

	Q3 2007	Q3 2006	Change*
	76.4%	78.2%	(1.9)
	(49.6%)	23.4%	(73.0)
Net	(49.5%)	19.4%	(68.9)

*Expressed in percentage points.

Margins are the earnings engine.

Balance Sheet Highlights

Assets	Q3 2007	Q3 2006	Change
Cash + ST Invest.	$3,988.7	$3,223.9	23.7%
Accounts Rec.	$411.2	$673.8	(39%)

Liabilities	Q3 2007	Q3 2006	Change
Accounts Payable	$98.7	$122.3	(19.3%)
Long-Term Debt	$0.0	$0.0	N/A

The balance sheet reflects the company's health.

Cash Flow Highlights

	Q3 2007	Q3 2006	Change
Cash From Ops.	$629.5	$522.1	20.6%
Capital Expenditures	$119.3	$136.9	(12.8%)
Free Cash Flow	$510.2	$385.2	32.4%
Owner Earnings	$487.7	$279.3	74.7%

Free cash flow is a Fool's best friend.

Competitive Context

Company	(in Millions)	Trailing	CAPS Rating (Out of 5)
Google (NASDAQ:GOOG)	$192,275.3	50.1	**
eBay	$55,153.2	316.7*	***
Amazon.com (NASDAQ:AMZN)	$37,433.3	123.3	**
Yahoo! (NASDAQ:YHOO)	$35,956.2	55.6*	**
ValueClick (NASDAQ:VCLK)	$2,499.3	33.0	*****
Overstock.com (NASDAQ:OSTK)	$701.7	N/A	*

Source: Capital IQ (a division of Standard & Poor's) except when noted.
*Calculated to include latest quarter.

Related Foolishness:

• Meg Whitman's Tough Lessons
• Skype Victoriously, MySpace Friends
• Fool Video: eBay's Skype Punt