AP News, January 25th, 2007
EBay Inc. is following its 24 percent jump in fourth-quarter profit with an ambitious stock buyback that Wall Street interpreted as a measure of executives' bullishness for future growth.
EBay shares soared $2.45, or 8.17 percent, to close at $32.45 on the Nasdaq Stock Market.
The San Jose-based e-commerce powerhouse announced Wednesday it would repurchase up to $2 billion of common stock within the next two years. Stock buybacks are considered a quick way to pump up a flagging stock price _ if companies have plenty of cash and are confident about future earnings growth.
This is the second major repurchase program at eBay in the past year. The company repurchased 31 million shares for about $1 billion last quarter.
The solid earnings report and buyback come almost exactly two years after eBay stock slipped precipitously on concerns about whether the company could withstand competition from other e-commerce leaders, particularly Google Inc. Analysts said the stock may now be a value relative to many of its rivals.
"This is a stock that since January of 2005 has done nothing but fall down the stairs of Wall Street with a face plant on each step down," said David M. Garrity, director of research for Dinosaur Securities LLC. "Now that they appear to have hit bottom, there's clearly an opportunity here for management to restore their relationship with the investment community, and certainly this enhanced buyback program is an important step in the right direction."
Thanks to scorching holiday sales _ particularly in the United States, United Kingdom and Germany _ eBay reported Wednesday it earned $349 million, or 25 cents per share, for the three months ended Dec. 31. It earned $279 million, or 20 cents per share in the year-ago period.
Fourth-quarter revenue totaled $1.72 billion, up 29 percent from $1.33 billion in the year-ago period.
Excluding charges unrelated to ongoing operations, eBay earned $431 million, or 31 cents per share, up nearly 27 percent from the same quarter last year, when the company earned $340 million, or 24 cents per share.
On that basis, which does not comply with generally accepted accounting principles, eBay was expected to earn $402 million, or 28 cents per share, on sales of $1.67 billion, according to analysts polled by Thomson Financial.
During the holiday quarter, more than 81 million active eBay users exchanged $14.4 billion in goods, ranging from pricey real estate and computer servers to Pez dispensers and clothing. The hottest sellers last quarter were automobiles and consumer electronics, in particular the Nintendo Wii and Sony PlayStation 3 gaming consoles.
President and Chief Executive Meg Whitman said the company raised first-quarter 2007 sales guidance to a range of $1.67 billion to $1.72 billion. Excluding special items, eBay expects earnings per share to be in the range of 28 cents to 30 cents per share.
Analysts said the strong quarterly results, buyback and increased guidance were the strongest signals yet that eBay could be poised for an upswing.
"I thought they were in a bit of trouble but it looks like they pulled it out. Meg did the hard spade work and pulled it all back together again," said Roger L. Kay, founder and president of research firm Endpoint Technologies. "I'd say eBay has bought itself at least a couple of years here in which they can think about how the enemies are sneaking around the back wall while they're minding the business."
In 2006, eBay earned $1.13 billion, or 79 cents per share, up 4 percent from $1.08 billion, or 78 cents per share, in 2005. Excluding stock-based compensation costs and other expenses, eBay in 2006 earned $1.49 billion, or $1.05 per share, up nearly 24 percent from $1.2 billion, or 86 cents per share, a year earlier.
Annual revenue was $5.97 billion, up 31 percent from $4.55 billion in 2005. That's higher than the $5.96 billion from the most optimistic analysts polled by Thomson Financial. Overall, analysts expected eBay to earn $1.46 billion, or $1.02 per share, on sales of $5.91 billion.
Despite the rosy quarter, fraud is mounting, and executives say combatting scams has become the top priority for 2007. An internal survey showed scammers may be denting eBay's reputation, and earlier this month, eBay's largest 250 sellers expressed concern during closed-door meetings with executives about the growing number of scams.
Less than one-hundredth of one percent of the listings on eBay are fraudulent. But even by that measure, as many as 61,000 auctions may have been phony last quarter, when more than 610.2 million items were listed.
EBay began a program last year to safeguard members' identities by concealing their user names on expensive listings. That measure could make it harder for con artists to contact losing bidders and goad them into "second chance offers," where customers wire cash to scammers' accounts.
Executives are working with international trade groups and the FBI to combat cyber criminals from organized syndicates. Engineers are trying to reduce counterfeit items and "phishing" scams, where con artists send e-mails nearly identical to official eBay announcements _ but redirect them to a site where passwords and financial data are mined.
"I got a very persuasive e-mail about my Bank of America account just last night, and if I wasn't in this industry I'm not sure I could have figure out it wasn't from Bank of America," Whitman said. "Trust and security must be part of our core competency, and we've got to stay a step ahead _ more than a step ahead."
