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The Globe and Mail

EBay results beat estimates, but outlook is cautious

The headquarters of eBay in San Jose, Calif.


EBay Inc. reported a higher-than-expected quarterly profit on solid growth in its online marketplaces and an increase in transactions processed through its PayPal electronic payments business.

The e-commerce company's shares were up nearly 2 per cent in after-hours trading, even though eBay gave a cautious outlook for first-quarter profit and revenue.

The company reported fourth-quarter net income of $2-billion (U.S.), or $1.51 a share, compared with $559-million, or 42 cents, a year earlier. Revenue rose 35 per cent to $3.38-billion.

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EBay recognized a big gain from the sale of its remaining stake in Skype during the fourth quarter. Excluding that and other items such as stock-based compensation expenses, profit was $788.6-million, or 60 cents a share, the company said.

Analysts, on average, expected eBay to earn 57 cents a share on revenue of $3.32-billion, according to Thomson Reuters I/B/E/S.

EBay is riding an e-commerce growth wave as shoppers buy more items online and through smartphones and tablet computers.

The company benefits from this trend because its online marketplaces charge fees on transactions and other activity. The company's PayPal unit takes a small cut of a rising volume of electronic payments processed on its network.

EBay forecast first-quarter profit of 50 cents or 51 cents a share and revenue of $3.05-billion to $3.15-billion. Profit for 2012 will be $2.25 to $2.30 a share and revenue will be $13.7-billion to $14-billion, the company added.

Analysts were expecting first-quarter earnings of 54 cents a share and revenue of $3.16-billion. For the full year 2012, analysts estimated per-share earnings of $2.31 on revenue of $13.66-billion, according to Thomson Reuters I/B/E/S.

EBay generates about 30 per cent to 40 per cent of its revenue in Europe, where many economies have been dented by the debt crisis.

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The recent decline of the euro against the U.S. dollar reduces the value of sales in euro zone countries when they are converted to dollars by California-based eBay. Currency volatility also restrains cross-border transactions, a profitable source of growth for PayPal.

"They're exemplifying the bearish outlook for the currency by telling people how much the weak euro will affect their earnings in the next quarter. They want to under-promise and over-deliver," said Bill Smead of Smead Capital Management, which owns eBay shares.

"But earnings are going to grow 15 to 20 per cent a year for years and all these little wiggles in the short run are just noise," he said.

EBay described the performance of its business in Europe as "stable," while its performance in Asia improved.

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