eBay is toast. >>Seattle, July 26 (Bloomberg) -- EBay Inc., the No. 1 online
auctioneer, said second-quarter profit fell 70 percent as it
spent more to market its Web site and add staff and computer
systems. Revenue more than doubled.
Net income at the Internet retailer fell to $816,000, or
1 cent a share, from $2.73 million, or 2 cents, a year earlier.
Revenue rose to $49.5 million from $19.5 million.
EBay has been promoting its site and making acquisitions to
stay ahead of rivals Yahoo! Inc. and Amazon.com Inc. The fast-
growing retailer said it expects to continue spending on
equipment, new businesses, expansion abroad and personnel for
operations and customer support -- limiting profits this year.
''Increased investments in infrastructure and international,
coupled with investment in some of the acquisitions, will put
pressure on operating profits in the second half,'' said analyst
Genni Combes at Hambrecht & Quist, who rates the shares ''buy.''
EBay, which closed at 104 3/8 in New York before the results
were released, last traded at 100 on Instinet.
EBay said its profit before merger- and compensation-related
expenses such as amortization was $5.1 million, or 4 cents a
share, compared with $5.2 million, or 5 cents, a year earlier.
On that basis, eBay was expected to earn 3 cents, the
average estimate of analysts polled by First Call Corp.
Unofficial estimates ranged from 3 cents a share to 6 cents on
EarningsWhispers.com, StreetIQ.com and WhisperNumber.com.
San Jose, California-based eBay said it expects acquisitions
and investments in its business to boost sales beyond analysts'
forecasts for the online business next year. EBay also said it
expects to meet analysts' earnings forecasts for next year.
Spending
Sales and marketing expenses at eBay more than tripled to
$22.9 million, while general and administrative costs more than
doubled to $10.1 million.
It added a new computer system to back up its main system
during outages and built up its engineering staff and enhanced
testing procedures. And, not including acquired companies, eBay's
staff rose to 304 from 198 in the first quarter.
''We've redoubled our efforts to invest in utility-like
stability,'' Chief Executive Meg Whitman said.
The company gave $3.9 million in credits to users after a
computer problem forced it to suspend auctions for almost a day.
Gross margin, or the percent of sales left after subtracting
the cost of goods sold, narrowed in the quarter to 78 percent
from 83 percent a year earlier. EBay said it expects gross margin
the rest of this year to remain in the mid 70-percent range, less
than it had forecast, because of the spending.
Gross margin will return to the mid 80-percent range next
year, executives said.
Amazon.com last week said its second-quarter loss widened
because of similar spending to build its business. Its shares
fell 15 percent on concern about when the spending would pay off.
Competition
EBay, which doesn't sell merchandise itself, makes money by
charging listing fees and collecting a royalty on each sale.
The retailer, founded in 1995, has more than 2 million items
listed for sale on its site. Yahoo, by contrast, has just over
500,000. Amazon.com has about 100,000 auctions, analysts said.
''Competition is always a concern,'' said Bruce Bartlett,
portfolio manager at Oppenheimer Funds Inc., which held 24,482
eBay shares as of March. ''But in terms of the quality of the
offering at eBay and the quality of the management, I'm confident
they'll be able to maintain a strong leadership position.''
Still, eBay is vulnerable to competition, especially during
service outages, analysts said.
To combat outages, eBay this quarter installed a backup
computer system that kicks in within two to three hours and is
planning an even faster set-up that would limit outages to 20
minutes, Whitman said.
EBay said it had 5.6 million registered users as of June 30,
an increase of 46 percent from the first quarter.
''Our leadership position remains unchallenged,'' said
Whitman.
EBay has lost about half its value from a peak of 215 in
April, partly on concerns about competition and outages at its
auction service. Still, the shares are up more than 17-fold from
their initial offering in September, adjusted for a stock split.
Acquisitions
The retailer made a series of acquisitions during the
quarter to add services in the face of the rising competition.
It bought alando.de AG, Germany's largest Internet auction
company, to expand overseas. Its purchase of Butterfield &
Butterfield Auctioneers Corp. added high-priced art and
collectibles and marked one of the first times that an Internet
company bought a traditional rival.
EBay also bought Kruse International, auctioneers of
collectible cars, and Billpoint Inc., a payment-services provider
that will let eBay users pay using their credit-cards.
While the company plans to focus on its most-recent
purchases, Whitman said eBay could make other acquisitions to
help expand abroad.
EBay was the 17th most-visited Web site in June, with about
8.7 million shoppers who visited at least once, according to
Media Metrix, which tracks Internet traffic.
Jul/26/1999 19:58<< |
