EBay profit rises 24%; sales up 29%

SAN FRANCISCO (MarketWatch) -- EBay Inc. late Wednesday reported fourth-quarter profit climbed 24% as sales rose more than expected, helped by a surge in its electronic-payments business and higher prices for the items eBay sells online.

The online auctioneer also issued a full-year profit forecast that exceeded Wall Street expectations and announced an extension of its share buyback program, helping send its shares (EBAY :

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EBAY30.00, +1.38, +4.8% ) up 10% in after-hours trading.

The San Jose, Calif.-based company said net income for the period ended Dec. 31 rose to $346 million, or 25 cents a share, from $279 million, or 20 cents, a year earlier.

Excluding the costs of employee stock options and other items, eBay said it would have earned 31 cents a share. In October, eBay forecast it would earn between 27 cents and 28 cents a share on that basis.

Sales rose 29% to $1.72 billion, topping the company's own expectations and the $1.67 billion estimate of analysts polled by Thomson First Call.

The results indicate a strong finish to a mixed year for eBay, which faced a backlash from some of its online sellers after it raised fees, and skepticism from Wall Street after it shut its operations in China after investing heavily there.

"EBay's core business is performing nicely and 2007 looks to bring more margin expansion and more stock buybacks," said Mark Mahaney, a Citigroup analyst who described the results as "unambiguously more positive." Mahaney has a buy rating on the stock.

Revenue from eBay's PayPal payments business rose 37% to $417 million, or a quarter of the company's total, while sales in its online marketplace business rose 24%.

EBay also saw healthy growth in its other businesses, with revenue from its Skype Internet phone division more than doubling from a year ago to $66 million.

While eBay Chief Executive Officer Meg Whitman said Skype's performance was encouraging, yet sales of its premium products are "not yet developing as quickly as we hoped" when it bought the company in late 2005.

EBay will try to goose Skype profits by adding new features, such as text messaging, she added during a conference call after eBay's results were announced.

The San Jose, Calif.-based company is looking to new areas for a boost as growth in its traditional auctions business has slowed in recent years.

"PayPal is a key component of our growth," eBay Chief Financial Officer Bob Swan said in an interview. Swan said of eBay's Skype and Shopping.com units, "they are expanding our breadth and capability."

In eBay's international markets, Swan said the company stabilized previously weakening overseas markets, including Germany and the U.K., and generated a record amount of free cash flow during the quarter.

The overall results were proof, Swan said, of a pay-off for what many saw as a risky move eBay made earlier in the year to raise fees on some of its highest-volume sellers.

In that shift, eBay increased how much it charges to list items in eBay stores, which generate less profit for eBay than its auctions business, to improve the quality of listings and encourage more sellers to use the auction method.

"I think the fundamental difference between expectations and the report was some underestimated our revenue per listing growth," Swan said.

EBay's results were also helped by a slightly lower tax rate, which fell to 28% from 29%.

For 2007, eBay said it expects to post earnings excluding certain items between $1.25 and $1.29 a share, more than the $1.23 a share average estimate of Wall Street analysts.

EBay expects upto $120 million in sales this year from secondary ticket-seller StubHub Inc., which eBay announced on Jan. 10 it is purchasing for $310 million in cash.

The company also announced Wednesday that it authorized the company to repurchase another $2 billion in company stock over the next two years, in addition to the $1.7 billion eBay has spent since July 2006.

"We don't believe the long-term value of the company was adequately reflected in the stock price," Swan said.

EBay shares rose as high as $33.15, or 10.5%, in late trading after the results were announced.