eBay Tops Estimates, Shares Fall on Below Forecast Outlook

[bargainbloodhound]

.Stock down 5% on news to 42.20

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eBay reported record consolidated Q4-05 net revenues of $1.329 billion, representing a growth rate of 42% year over year (up from 37% Q3-05 over Q3-04); operating income of $370.4 million, up 30% year over year, representing a 28% operating margin; and pro forma operating income of $448.1 million, up 43% year over year, representing a 34% pro forma operating margin.

Consolidated net income in Q4-05 was $279.2 million, or $0.20 per diluted share. eBay's pro forma consolidated net income was $340.1 million, or $0.24 per diluted share.

These results exceeded the high end of the company's guidance of $1.285 billion for net revenues, exceeded the company's guidance of $0.16 for GAAP earnings per diluted share and exceeded the company's guidance of $0.21 for pro forma earnings per diluted share.

For the full year, eBay generated consolidated net revenues of $4.552 billion, a 39% increase over the $3.271 billion in 2004. Consolidated net income increased 39% year over year to $1.082 billion, or $0.78 per diluted share. On a pro forma basis, eBay reported a 45% increase in consolidated net income year over year to $1.203 billion, or $0.86 per diluted share. Operating cash flows increased 56% year over year to $2.010 billion. Free cash flows increased 59% year over year to $1.574 billion.

"Q4 capped off a remarkable year for eBay," said Meg Whitman, President and CEO of eBay, Inc. "We saw accelerating growth and momentum across the board, a testament to the fact that eBay has built the most outstanding portfolio of businesses on the Internet."

Full Year Key Financial and Operating Metrics

Consolidated Net Revenues -- Consolidated net revenues totaled a record $4.552 billion, which represented an increase of 39% from the $3.271 billion reported in the full year 2004.

Listings -- eBay listings totaled a record 1.9 billion in the full year 2005, 33% higher than the 1.4 billion listings reported in the full year 2004.

Gross Merchandise Volume (GMV) -- eBay GMV, the total value of all successfully closed listings on eBay's trading platforms, was a record $44.3 billion, representing a 30% year over year increase from the $34.2 billion reported in the full year 2004.

Total Payment Volume (TPV) -- TPV, the dollar volume of payments initiated through the PayPal system, excluding the payment gateway business, was $27.5 billion, representing a 45% year over year increase from the $18.9 billion reported in the full year 2004.

Key Q4 Financial and Operating Metrics

Consolidated Net Revenues -- Consolidated net revenues totaled a record $1.329 billion in Q4-05, an accelerating growth rate of 42% over the $935.8 million reported in Q4-04.

    * US Marketplaces Net Revenues -- US Marketplaces, including Shopping.com, net revenues totaled $526.1 million in Q4-05, representing 39% year over year growth.
    * International Marketplaces Net Revenues -- International Marketplaces net revenues totaled $473.5 million in Q4-05, representing 35% year over year growth, in dollar terms.
    * Payments Net Revenues -- Payments net revenues totaled $304.4 million in Q4-05, representing 48% year over year growth.
    * Communications Net Revenues -- Our Communications business represents the operations of Skype Technologies SA, which we acquired on October 14, 2005. Communications net revenues totaled $24.8 million from the acquisition date through the end of Q4-05.

Marketplaces

    * Confirmed Registered Users -- eBay cumulative confirmed registered users at the end of Q4-05 totaled 180.6 million, representing a 33% increase over the 135.5 million users reported at the end of Q4-04.
    * Active Users -- eBay active users, the number of users on the eBay platform who bid, bought, or listed an item within the previous 12-month period, increased to a record 71.8 million in Q4-05, a 28% increase over the 56.1 million active users reported in the same period a year ago.
    * Listings -- eBay new listings totaled a record 546.4 million in Q4-05, 35% higher than the 404.6 million new listings reported in Q4-04.
    * Gross Merchandise Volume (GMV) -- eBay GMV, the total value of all successfully closed items on eBay's trading platforms, was $12.0 billion, representing a 22% year over year increase from the $9.8 billion reported in Q4-04. Excluding the impact of foreign currency translation, Q4-05 GMV increased 26% year over year.
    * Fixed Price Trading -- eBay's fixed price trading contributed approximately $4.0 billion or 34% of total GMV during Q4-05, primarily from eBay's "Buy It Now" feature.
    * eBay Stores -- At the end of Q4-05, eBay hosted approximately 383,000 stores worldwide, with approximately 212,000 stores hosted on the US site.

Payments

    * Total Payments Accounts -- PayPal had 96.2 million total accounts at the end of Q4-05, a 51% increase from the 63.8 million reported in Q4-04. Total payments accounts represent the cumulative total of all accounts opened, excluding accounts that have been closed or locked and the payment gateway business accounts, and including users who made payments with PayPal but have not registered.
    * Total Payment Volume (TPV) -- TPV, the dollar volume of payments initiated through the PayPal system, excluding the payment gateway business, was a record $8.1 billion in Q4-05, a 45% increase from the $5.6 billion reported in Q4-04.

Communications
# Registered Users -- Communications had 74.7 million total registered users at the end of Q4-05. Communications registered users represent the cumulative total of all users who have completed the Skype registration process.

GAAP Operating Income -- GAAP operating income increased 30% year over year to $370.4 million, or 28% of net revenues.

Pro Forma Operating Income -- Pro forma operating income increased 43% year over year to $448.1 million, or 34% of net revenues. Pro forma operating income represents GAAP operating income adjusted to exclude certain items, primarily stock based compensation expense and related payroll taxes and amortization of acquired intangible assets.

GAAP Net Income -- GAAP net income increased 36% year over year to $279.2 million, or $0.20 per diluted share.

Pro Forma Net Income -- Pro forma net income increased 50% year over year to $340.1 million, or $0.24 per diluted share. Pro forma net income represents GAAP net income adjusted to exclude certain items, primarily stock based compensation expense and related payroll taxes, amortization of acquired intangible assets and income taxes related to these items.

Operating and Free Cash Flows -- Operating cash flows increased 38% year over year to $526.2 million. Free cash flows, representing operating cash flows less net purchases of property and equipment of $97.7 million, increased 44% year over year to $428.5 million.

Consolidated Financial and Operating Summary

eBay reported record consolidated net revenues of $1.329 billion in Q4-05 with growth rates accelerating to 42% year over year. Consolidated net revenues was negatively impacted by foreign currency translation of approximately $40.7 million in Q4-05 as compared to Q4-04. On a sequential basis, consolidated net revenues was negatively impacted by foreign currency translation in Q4-05 by approximately $13.9 million.

Gross profit was $1.089 billion in Q4-05, or 82% of net revenues, slightly higher than the 81% reported in Q4-04, due primarily to increases in our International Marketplaces and Payments segment gross margins.

Sales and marketing expenses totaled $378.5 million, or 28% of net revenues, lower than the 29% reported in Q4-04. This improvement results from optimization of our marketing mix and increased focus on online marketing efficiency.

Product development expenses totaled $103.9 million, or 8% of net revenues, up from the 7% reported in Q4-04.

General and administrative costs totaled $181.7 million, or 14% of net revenues, up from the 12% reported in Q4-04. The percentage increase was primarily due to headcount additions and higher transaction loss expense.

Income from operations totaled $370.4 million during Q4-05, a 30% increase over the $284.7 million reported in Q4-04. On a pro forma basis, income from operations totaled $448.1 million, a 43% increase over the $313.9 million reported in Q4-04. On a year over year basis, income from operations was negatively impacted by foreign currency translation of approximately $17.7 million in Q4-05. On a sequential basis, income from operations was negatively impacted by foreign currency translation in Q4-05 by approximately $5.2 million.

Interest and other income, net, totaled $25.6 million in Q4-05, up from the $18.8 million reported in Q4-04. The increase was primarily due to higher interest rates, offset in part by lower cash and investments balances resulting from Q4-05 acquisitions.

The GAAP effective tax rate for Q4-05 was 29% (pro forma 28%), a decrease from the GAAP effective tax rate of 32% for Q4-04 (pro forma 32%), and from 34% for Q3-05 (pro forma 34%). The lower effective tax rates for Q4-05 as compared to Q3-05 were due primarily to a one-time $16.6 million charge in Q3-05 related to the final application of certain tax regulations. The lower tax rate for Q4-05 as compared to Q4-04 results primarily from changes in the company's geographic mix.

The company reported $526.2 million in operating cash flows and $97.7 million of net purchases of property and equipment in Q4-05, resulting in free cash flows of $428.5 million. The company's cash, cash equivalents, and investments totaled nearly $2.9 billion at the end of Q4-05.

Business Outlook

The following updated guidance reflects current business trends and assumed exchange rates. This guidance is based on a weighted average exchange rate of US $1.20 per Euro, which is consistent with prior guidance. The guidance includes the estimated impact of expensing stock options from the adoption of Financial Accounting Standards Board Statement FAS No. 123® "Share-Based Payment" (FAS 123®), which will be reflected in our operating results beginning in Q1-06. The guidance does not include the potential impact of any future acquisitions.

Fiscal Year 2006

Net Revenues -- eBay expects consolidated net revenues for 2006 to be in the range of $5.700 billion to $5.900 billion. From a quarterly perspective, eBay expects consolidated net revenues to be in the range of $1.365 to $1.380 billion in Q1-06, $1.370 to $1.415 billion in Q2-06, and $2.965 to $3.105 billion for the six months ending December 31, 2006.

GAAP Diluted EPS -- eBay estimates GAAP earnings per diluted share for the full year 2006 to be in the range of $0.65 to $0.71. From a quarterly perspective, eBay estimates GAAP earnings per diluted share to be in the range of $0.14 to $0.15 in Q1-06, $0.14 to $0.16 in Q2-06 and $0.37 to $0.40 for the six months ending December 31, 2006. The estimated earnings per diluted share includes the estimated impact of expensing stock options under FAS 123® of approximately $0.16 to $0.17 for the full year ending December 31, 2006 and $0.04 to $0.05 for each of the quarters in the year ending December 31, 2006.

Pro Forma Diluted EPS -- eBay estimates pro forma earnings per diluted share for the full year 2006 to be in the range of $0.96 to $1.01. From a quarterly perspective, eBay estimates pro forma earnings per diluted share to be in the range of $0.22 to $0.23 in Q1-06, $0.22 to $0.23 in Q2-06 and $0.52 to $0.54 for the six months ending December 31, 2006.

Complete 4Q earnings press release with financial tables: http://www.sec.gov/Archives/edgar/data/1...xv99w1.htm

[regic]

Q4 2005 Earnings Release
Jan 18, 2006 at 2:00pm PT

http://investor.ebay.com/MediaRegister.c...iaID=17794

[regic]

Bloomberg comments on the slide in eBay's stock price last year:

The shares declined 26 percent last year, the worst performance since falling 47 percent in 2000. The stock has tumbled on investor concern about slowing profit growth and increased competition as Amazon.com offers used goods and Google wins merchants who are buying ads linked to search results.

Investors have sold the stock on concern that more merchants are moving to sites other than EBay to sell goods and setting up their own Internet sites which can be accessed with a Google search. Amazon.com, the world's biggest online retailer, now offers used and refurbished items including televisions, computers and DVD players.

The frequent promotions eBay ran in the 4th quarter were largely responsible for the growth in listings

quarterly profit jumped 36 percent as discounts spurred new listings.

The fee cut on $0.01-$0.99 items is in response to increased threats from Amazon and Google for market share.

EBay forecast first and second-quarter revenue less than analysts' estimates. Chief Executive Officer Meg Whitman gave discounts to lure listings as EBay is being challenged for sales by Amazon.com Inc. and Google Inc.

http://quote.bloomberg.com/apps/news?pid=10000006&sid=afKGxxeX4jPY

[bargainbloodhound]

I think Bloomberg needs to add another challenger to that list   During the holiday selling season the top 3 shopping destinations were 1. eBay 2. Amazon 3. Wal-Mart.com

eBay's announcement of eBay Express, with its emphasis on "new", combined with the downward pressure the fee decrease on low priced items will exert, means eBay will be competing for many of the same discount mass merchandise buyers that Wal-Mart competes for.  Wal-Mart.com is expected to surpass Amazon in size within the next couple of years, and with its financial muscle it will also surpass (the comparatively tiny) eBay to become the top Internet shopping destination.