Surging sales have delivered eBay a 24% profit hike

Published on Thursday 25 January 2007 12:19

INTERNET auction site eBay has reported a 24 per cent rise in quarterly profits in the final three months of 2006 compared with the same period last year.

Company bosses said surging sales in the US, the UK and Germany, as well as demand for hard-to-find Sony and Nintendo gaming consoles, meant that more than 81 million customers bought and sold 7.3 billion worth of goods through the website.

The popular site, which takes a cut of an item's sale price as well as a listing fee, made 177.3 million profit between October and December - reassuring investors worried by three years of slowing revenue growth for the online marketplace.

The company's share price has also risen by 10.2 per cent in after-market trading following the announcement.

Chief financial officer Bob Swan said: "From third quarter to fourth quarter we saw a re-acceleration of growth driven by better-quality inventories and higher conversion rates."

But eBay chiefs also warned that it was taking longer than they had hoped to start making money from Skype - the internet calling firm it bought for 1.3bn in 2005.

Chief executive Meg Whitman said: "While Skype continues to experience stellar growth in terms of its user and adoption rates, the monetisation efforts we outlined at the time of the acquisition are not developing as quickly as we had hoped."

However, she added that the company had seen a "very strong quarter capping a very strong year". The California-based company had taken steps in recent months to trim the number of listings consumers see when searching for products on eBay auctions.

Executives said this helped boost revenues by helping buyers find what they wanted.

In a research note to investors, Goldman Sachs analyst Anthony Noto said that the site was likely to benefit from further strong results in the future.

He said: "eBay is at the early stages of a multi-quarter period of stabilising-to-accelerating growth. We expect eBay shares to benefit from strong results, higher estimates and likely multiple expansion given accelerating gross merchandise volume growth and improved margins."

Gross merchandise volume - the total value of goods and services sold on eBay auction sites - grew 20 per cent to 7.3bn. By contrast, that volume figure grew 17 per cent, year-over-year, in the third quarter of 2006.

Fourth-quarter net income rose to 176.2m from the previous year's 142m. Excluding one-time items, net income rose 27 per cent to 219.2m, topping Wall Street's consensus forecast.

Net revenue of 874m, up 29 per cent from a year earlier, marks a steadying of eBay's growth rate, which has fallen over the past three years from above 50 per cent. Analysts, on average, had expected growth of only 25 per cent.

The results have also been accredited to a strong performance in Britain, which has now become the world's busiest eBay nation.

More is now traded on eBay UK per head of population - about 50 a year each - than anywhere else in the world, including the USA.