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EBay Earnings Surge 50 Percent; Beating Expectations

EBay Inc. (EBAY) is trying to milk more money out of every customer — a strategy that has resulted in record revenue but makes some analysts nervous about the company's long-term prospects.

The online auction company reported Wednesday that second-quarter profit surged 50 percent, easily beating Wall Street expectations thanks to strong sales on online auctions, the automobile classified section and e-commerce sites such as shopping.com.

But the number of items for sale on the site declined for the third consecutive quarter. Individual listings dropped 2 percent from a year ago, and eBay store listings plunged 25 percent from a year ago.

EBay shares fell 53 cents in extended trading after the results were released. The shares lose 20 cents to close at $34.05 in Wednesday's regular session.

The San Jose-based company earned $375.8 million, or 27 cents per share, compared with $249.9 million, or 17 cents per share, in the second quarter of 2006.

Revenue for the period ended June 30 was $1.83 billion, up 30 percent from $1.41 billion in the year-ago quarter.

Not including $79.6 million in stock-based compensation expenses and other one-time charges, eBay earned $471.1 million, or 34 cents per share, up 34 percent from a year ago.

On that basis, which does not comply with generally accepted accounting principles, analysts polled by Thomson Financial expected eBay to earn $447.18 million, or 32 cents per share, on revenue of $1.78 billion.

"We were very pleased across the board — from the core eBay business to merchant services at PayPal, which was a standout performer," eBay President and Chief Executive Meg Whitman told The Associated Press.

Revenue from the electronic payment service PayPal was $432.3 million, up 31 percent from a year ago.

The Skype division, which allows customers to place long-distance calls using their computers, reported revenue of $89.13 million, up 102 percent from a year ago. It's the second consecutive quarter of profitability for Skype, which eBay purchased in October 2005 for about $2.1 billion.

Ebay, which ended last quarter with $3.4 billion cash, took in $1.24 billion in sales from ebay.com, shopping.com, ticket vendor StubHub.com and other e-commerce sites — up 24 percent from a year ago. Of that, 52 percent came from outside the United States.

Individuals and "power sellers" who operate eBay stores listed 559.1 million items worth $14.46 billion in the quarter. But the number of individual listings was 480 million, down 6 percent from the previous quarter and down 2 percent from a year ago. The number of eBay store listings was 79.1 million — unchanged from last quarter and down 25 percent from a year ago.

Executives said in a conference call that revenue would continue to outstrip growth in listings. That trend troubles Rick Munarriz, who researches technology companies for The Motley Fool.

"The company is milking more out of each transaction," Munarriz said. "There comes a point where the end user isn't going to like being nickeled and dimed, so this could backfire."

The 14,000-employee company purchased about 10 million shares of common stock for $344 million last quarter — part of an aggressive program to buy back up to $2 billion in stock by January 2009.

Executives raised their forecast for the rest of the year. Excluding certain charges, eBay expects 2007 profit of $1.34 to $1.38 per share on sales of $7.3 billion to $7.45 billion.

In the current quarter, the company expects profit of 31 to 33 cents per share, excluding certain charges, on revenue of $1.775 billion to $1.825 billion.