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EBay Q4 Results Strong But Outlook Disappoints

By Reuters
Published | Updated

SAN FRANCISCO – Online marketplace eBay Inc. (EBAY) posted strong quarterly results on Wednesday but disappointed Wall Street by failing to raise its 2006 outlook, and its shares fell 5 percent in after-hours trading.

Fourth-quarter profit jumped 36 percent and per-share earnings beat analysts' average forecast, but the outlook for 2006 remains below the average Wall Street estimates.

"The quarter was fine. The company didn't increase 2006 guidance and I think that would be viewed as a negative," said Scott Devitt, an analyst with brokerage Stifel, Nicolaus & Co.

It was the second straight day of bad news from bellwethers in the tech sector. Internet media giant Yahoo Inc. (YHOO) and chipmaker Intel Corp. (INTC) posted weak results on Tuesday, and eBay and Apple Computer Inc. (AAPL) issued less-than-glowing forecasts on Wednesday.

Shares of eBay, which closed at $44.44, fell to $42 in after-hours trading on the Inet electronic brokerage system. The shares fell 2.1 percent during regular trading ahead of the quarterly report, amid a broad stock market sell-off sparked by the Yahoo and Intel results, which came after the closing bell on Tuesday.

EBay, also reporting after the bell, said fourth-quarter net income rose to $279.2 million, or 20 cents per share -- beating analysts' average forecast by 2 cents per share -- up from $205.4 million, or 15 cents per share, a year earlier.

Net revenue rose 42 percent to $1.33 billion as the company enjoyed accelerating revenue growth in its two largest markets, the United States and Germany, and better-than-expected revenue growth in recent acquisitions Skype and Shopping.com.

"We had tremendous momentum and we are very bullish about 2006," eBay Chief Financial Officer Rajiv Dutta told Reuters in an interview. But he said the company was not changing its October forecast that revenue would grow to between $5.7 billion and $5.9 billion in 2006, with profit of 96 cents to $1.01 per share.

The earnings outlook is on the lower end of Wall Street expectations. Analysts' average profit forecast, excluding one-time items, is $1.01 per share, according to Reuters Estimates. The average revenue estimate is $5.9 billion.

"It appears as though management doesn't want to go out on a limb," said Mike Koskuba, a buyside analyst at New York-based Victory Capital Management.

"Not changing their outlook gives management room to beat each quarter by a penny or two (per share)," said the analyst, who helps manage $1.4 billion, including eBay shares.

EBay's U.S. transaction revenue grew 39 percent to $526.1 million in the fourth quarter. International revenue, led by Germany, rose 35 percent to $473.5 million. Net transaction revenue from its PayPal online payment business grew 48 percent to $304.4 million.

A year ago, eBay shares suffered a sharp hit when the company reported slowing growth in its U.S. and German auction markets, spooking investors. EBay shares are down nearly 28 percent from year-end 2004 levels.