EBay 2Q Profit Up but Shares Fall on Dismal Forecast

EBay Inc. second quarter profit grew 22 percent owing to strong growth in its e-commerce sites and its PayPal payments service, the company said on Wednesday. However, skepticism over growth and a mixed out look for the remaining year, caused the shares to drop 6.6 percent in after-hours trading.

The San Jose, Calif.-based Internet auctioneer said net income for the period ended in June increased to $460 million or 35 cents a share, from $376 million, or 27 cents a share, in the same period a year earlier. Revenue rose 20 percent to $2.2 billion. Excluding special items, eBay said earnings for the quarter were 43 cents a share.

Analysts had forecast earnings of 41 cents per share.

"We're delivering strong results in a tough economic environment," eBay Chief Executive John Donahoe said during a conference call with analysts.

The average selling price dropped 6 percent, slowing growth in spending by online buyers. Gross merchandise volume, the value of all goods that users sold on EBay's sites, recorded the smallest increase in the past five quarters, rising only 8 percent.

Consumers are “trading down to lower-priced items,” particularly in the U.S. and U.K. where economies are slumping, Chief Financial Officer Robert Swan said on a conference call. “We'll feel the effects of that until the economy rebounds.”

The company has been trying to implement some changes in order to maintain business during decelerating sales and increasing demand for discounts as higher food and gasoline prices take a toll on household budgets.

Donahoe's strategy of eliminating most upfront fees, helped enhance listings and encourage bargain-hunting. Listings climbed 19 percent to 667 million during the quarter, but the company's number of active users only increased 1.4 percent to 84.5 million.

The CEO believes that alterations might prove difficult initially but they will be fruitful in the long run.

"We feel like we're on the right path and we're going to stick with it," Donahoe said.

eBay forecast a revenue between $2.1 billion and $2.15 billion for its fiscal-third quarter and expects earnings excluding special items to be between 39 cents and 41 cents a share. Analysts estimated earnings of 41 cents on revenue of $2.17 billion.

The world's largest Internet auctioneer however is more optimistic about the year and raised its outlook for revenue between $8.8 billion and $9.05 billion with earnings of $1.72 to $1.77 per share. The company had previously predicted adjusted earnings of $1.70 to $1.75 on $8.70 to $9 billion in revenue.