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EBay posts higher profits in 4th quarter, even higher users

by Epiphany Acevedo
Jan 23, 2014

EBay Inc. reported positive fourth-quarter earnings Wednesday due largely to an increase in online shoppers during the holiday season.

In the fiscal quarter ended Dec. 31, eBay earned $8.5 billion, or 65 cents per diluted share, up 13 percent from $7.5 billion, or 57 cents per diluted share, in the year-ago period. The company’s revenues totaled $4.5 billion, up 13 percent from $4 billion.

EBay’s earnings per share came in slightly below analysts’ expectation of 66 cents per diluted share. Excluding one-time charges, eBay would have earned 81 cents, surpassing analysts’ adjusted estimate of 80 cents per share.

EBay’s profit would have been even higher if not for its Bill Me Later program, which extends credit to users to pay for their purchases. As with any credit card issuer, the company assumes the risk if users default.

Executives of the San Jose, Calif.-based company expected net revenues in the range of $4.5 billion to $4.6 billion with earnings per diluted share in the range of 67 to 69 cents. Although eBay met its revenue goal, CEO and President Joe Donahoe expressed disappointment the company did not do better in the fourth quarter.

“We anticipated accelerating second half growth, which did not materialize, so we ended the year at the lower end of our guidance,” Donahoe said in a conference call with analysts.

In Deloitte’s 28th annual survey of holiday intentions and trends last November, the Internet ranked No. 1 on the list of places respondents expected to shop for the first time in history.

EBay boasted a hike in mobile users during 2013. With more users opting to shop on their phones, total mobile-enabled commerce volume rose 88 percent from the previous year.

However, sales were not as high as expected given the significant increase in users.

New accounts with eBay are growing faster than revenue according to Kerry Rice, managing director of equity research at Needham & Co.

“They are adding a lot of customers, which they did highlight, but those users are not spending as much as existing customers. They are not accelerating growth and new accounts are growing faster than revenue,” Rice said in an interview.

Rice also suggested that eBay’s inability to exceed its goals in the fourth quarter, while Internet sales in general sharply increased, relates to consumers not viewing eBay as comparable to Amazon.

“There is this lingering effect that eBay is auction-based and it is kind of used goods. It’s quite the opposite now. EBay is mostly new goods and fixed price, but I don’t know how well that is being communicated to consumers,” Rice said.

For the full year 2013, net income rose 9.5 percent to $28.6 billion, or $2.18 per diluted share, up from $26.1 billion, or $1.99 per diluted share, in the previous year. Sales rose 14 percent to $160 billion from $140 billion in 2012.

In 2013 eBay’s net credit losses for the Bill Me Later program increased by 1 percent and its 90-day delinquency rate increased by 0.2 percent. These increased rates correspond with a 41 percent increase in the company’s provision for transaction and loan losses.

EBay reported that it plans to invest more in sales and marketing. The company hopes that these investments will generate 12-15 percent growth in 2014, with revenue in the range of $18 billion - $18.5 billion.

The company announced Wednesday that investor Carl Ichan submitted a proposal to separate eBay and PayPal into individual companies. EBay turned down the proposal, saying that PayPal’s technology largely shapes eBay’s ability to drive commerce on a global scale.

Ebay shares closed at $44.41, up $0.26.