eBay's Earnings Strong

For the second straight quarter, online auction giant eBay eased by analysts' expectations and raised guidance for the remainder of 2001. All key metrics still look strong, and almost a quarter of the company's revenue now comes from areas other than U.S. auctions. That's reassuring as the domestic business matures and growth naturally slows.

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By Rex Moore (TMF Orangeblood)
July 19, 2001

Much like last quarter, many investors were looking for eBay's (Nasdaq: EBAY) earnings report today with upbeat expectations. Few thought it would have any trouble meeting or beating estimates. After all, during Q1's conference call, the online auction king actually raised its guidance for the rest of the year -- and you wouldn't do that unless you were confident.

And once again, eBay did not disappoint, as it beat earnings per share estimates by three cents and raised guidance yet again. The company reported second-quarter revenues of $180.9 million, an increase of 84% over last year. Net income was $24.6 million, or $0.09 a share. Pro forma net income of $33.5 million, which excludes certain charges, was up 235% year-over-year. Pro forma earnings per share worked out to $0.12.

Management also indicated that revenue for the second half of 2001 should be $15 million to $30 million higher than previously expected, citing strong growth in fixed-priced transactions -- such as instant-purchase Buy It Now deals, now comprising about 35% of all listings -- Billpoint online payments (the company takes an additional cut of these), and eBay Motors.

One area in which I was keenly interested this quarter was the number of auctions hosted. There had been a rumbling or two that growth in this area would be off sharply, even to the point of turning negative on a sequential basis. Continued growth would be a validation of management's explanation for a stagnating current count: They say auctions are on the site for less time because of Buy It Now and increased fees for 10-day auctions. Apparently there's not too much to worry about on this front, as 98.7 million auctions took place during the quarter, which represents an 11% sequential increase. (Last quarter saw an increase of 12%.)

The company also saw increases in other key metrics. Gross merchandise sales jumped 14% from the first quarter to $2.25 billion, and eBay now has 34.1 million registered users. That figure marks a 116% increase over the same period last year.

Management also finally shed some light on a couple of other revenue sources. Online advertising accounted for 10% of total sales, and foreign operations kicked in 14%. The fact that nearly a quarter of revenue now comes from sources other than U.S. auctions is good news as the domestic front matures and growth naturally slows.

Rex Moore will write for food... preferably donuts. He owns shares of eBay. Feel free to view all his holdings in his profile. The Motley Fool has a disclosure policy.

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