EBay misses Q4 estimates, earnings down 31%, revenues down 7%

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EBay misses Q4 estimates, earnings down 31%, revenues down 7%

New York (NY) – EBay’s Q4 earnings fell 31% on $2.04 billion in revenue, down 3.8% last year’s $2.12 billion in the same quarter. EBay’s marketplace segment (including auction website) revenues fell 15% to 1.27 billion, while PayPal’s revenues climbed 11% to $623 million. Wall Street was expecting $2.12 billion, which was on par with eBay’s performance last year. Operating margin decreased from 28.7% last year to 22.3% this year. Revenues were down an additional 4% on the quarter, which continues a declining trend seen every quarter this year.

Overall for the year, eBay posted $8.54 billion in revenue, and a net income of $2.24 billion non-GAAP ($1.78 billion GAAP). EBay had operating cash flow of $2.88 billion and free cash flow of $2.32 billion.

Quarterly net revenues decreased 7% from $2.18 billion to $2.03 billion year on year. Annual revenues increased 11% from $7.672 in 2007 to $8.541 in 2008, $869 million up – though this increase was primarily due to the earlier fiscal quarter which showed positive gains approaching 24%.

According to eBay President and CEO, John Donahoe, “While the holiday season was tough and competitive, our overall results for 2008 were strong. For 2008, we delivered double-digit revenue and earnings growth; made significant changes in our eBay business; and built a stronger, more diverse portfolio of leading e-commerce businesses. We will build on our strengths in 2009 while managing our business prudently in the continued challenging environment.”

See eBay’s full disclosure PDF (16 pages).

Opinion and analysis

EBay’s business has been on a continued downward trend since Q4’2007 where its profits were up 27%, then 24%, then 20%, then 12% and now down 7%. This quarterly loss trend is interesting to observe because one would think in a tough global economy that people would turn to services like eBay to buy some products (possibly used) for less money than retail. However, while overall revenues were up for the year, it means the weakened economy is also affecting eBay as well. But is it just the weakened economy?

I used to work for a company that operated very closely with eBay. It has been a long held belief by many of eBay’s partners and affiliates that their business model is actually damaging to its core business – people. EBay has at various times increased seller fees, changed policies on BuyItNow, changed feedback policies so legitimate sellers have a difficult time leaving negative feedback for problem buyers, and have introduced online store packages which not only drive away many buyers, but also sellers.

When eBay used to be an auction-only site it was very desirable for consumers. You bid your bids and you took your chances. But now it seems eBay has turned into a cash-maximizing business. And while eBay is the #8 site on the Internet, and it is still an extremely viable company, I cannot help but wonder what it would be like were eBay slightly less focused on greed (only slightly mind you), acting more on behalf of its buyers – by doing something to make it more desirable for sellers to list their products. EBay’s business model generated a staggering $2.25 billion in net profits on only $8.54 billion in sales. That’s a 26.3% net profit margin, and is much larger than even Intel’s when they were a much larger revenue company of 12-18 months back.

So, it’s just this thought:  Is it too much to ask that big corporations earning so much money cut back on the profits a bit to serve people a little more and money a little less? It might make eBay more like the eBay many of us remember.

Of course, this is just my opinion. I could be wrong.

The opinions expressed in this commentary are solely those of the author.


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