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EBay profits exceed predictions

"When a new entrant comes into a category and creates a lot of interest and news, the market leader is actually the beneficiary ... I think we have disproportionately benefited from [Google Checkout]."

Meg Whitman, eBay CEO

EBay, the Internet auction giant, has scored at least a temporary victory over the mounting pressures facing its business.

In its fourth-quarter earnings report on Wednesday, the company announced profit of US$346 million or 25 cents a share, a 24 percent increase over the comparable period in 2005, exceeding analysts' estimates.

The company said revenue was US$1.7 billion, a 29 percent jump from the fourth quarter of 2005, largely because of increased business in its core auction marketplace during the holiday months.

"It was obviously a very good quarter with excellent results across all the businesses," eBay CEO Meg Whitman said, citing a strong holiday shopping season and better than expected conversion of visitors to the Web site into actual buyers.

For the entire year, eBay reported earnings of US$1.1 billion, or 79 cents a share, a 4 percent increase over 2005.

Whitman said the company "began the year strong and had a tough middle where we hit some speed bumps, but we ended strongly."

The company achieved good growth in its two ancillary busi-nesses. PayPal, its online payments subsidiary, earned US$417 million in net revenue, a growth rate of 37 percent over the period of last year.

The Internet calling service Skype, which the company bought for US$2.6 billion in 2005, now has 171 million registered users, a 129 percent increase from the end of 2005.

In a conference call with investors, eBay said revenue from Skype was not materializing as quickly as predicted.

But company executives said they were happy with its growing user base and dominance of the Internet calling market.

EBay's earnings report comes at a time of increasing doubt on Wall Street that it can keep pace with rivals. Analysts point out that the growth of active eBay users in its largest markets, including the US, has slowed.

All told in 2005, the company had 81.8 million active users worldwide -- a 14 percent increase from 2005, but significantly down from the astronomical growth rates earlier in the decade.

Google in particular poses a growing threat to eBay. Last year, the search company introduced Google Checkout, a payment tool to compete with eBay's PayPal, and earlier this month it began promoting the service aggressively on its home page.

In the conference call, Whitman said there were early signs that Google Checkout was actually benefiting PayPal.

"When a new entrant comes into a category and creates a lot of interest and news, the market leader is actually the beneficiary," she said. "I think we have disproportionately benefited from" Google Checkout.

Analysts also worry that shoppers and buyers will simply turn to search engines to find each other, and not closed services like eBay's auction marketplace.

"People are simply not as interested as they were to go to auctions for online shopping," said Safa Rashtchy, senior Internet analyst at Piper Jaffray & Co. "EBay is facing a fundamental change in consumer behavior."

More recently, eBay has also run into trouble abroad. Last month, it shut its ailing China site and invested US$40 million in a joint partnership with the Chinese company TOM Online, which will run the new operation.
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