AP
Skype Purchase Cost EBay
Wednesday October 17, 7:06 pm ET
By Rachel Konrad, AP Business Writer
EBay Loses $936 Million in 3Q Due to Skype Charges


SAN FRANCISCO (AP) -- EBay Inc. reported Wednesday a third-quarter net loss of more than $936 million -- a rare plunge into the red for the e-commerce juggernaut caused by charges to its Skype telecommunications division.

But San Jose-based eBay still easily exceeded Wall Street's expectations for the quarter ended Sept. 30, thanks to record revenue of $1.89 billion, up 30 percent from the year-ago quarter.

Executives credited record revenue at the PayPal electronic payment division, and brisk sales outside of the United States and at ticket broker StubHub.com.

Early this month, eBay announced it would take a $900 million write-down in the value of Skype. That impairment charge essentially acknowledged that eBay executives drastically overvalued the $2.6 billion Skype acquisition, completed in October 2005. EBay also paid certain Skype shareholders $530 million to settle future obligations.

Including the Skype charges, eBay lost $936.6 million, or 69 cents per share. In the year-ago quarter, it earned $280.9 million, or 20 cents per share.

It was the first time the company reported a loss since the second quarter of 1999, eBay President and CEO Meg Whitman said. It's also the first time the company has taken a write-down.

Not counting Skype charges, stock-based compensation and other expenses, eBay earned $563.8 million, or 41 cents per share, up 53 percent from $367.4 million, or 26 cents per share, in the year-ago quarter.

On that basis, analysts polled by Thomson Financial expected eBay to earn $456.26 million, or 33 cents per share, on revenue of $1.83 billion.

EBay bought back 14.8 million shares of its stock for $500 million last quarter, part of a $2 billion repurchase program continuing through January 2009.

The company expects fourth-quarter revenue from $2.1 billion to $2.15 billion. After one-time charges, it expects earnings between 39 cents and 41 cents per share.

EBay stock closed Wednesday at $40.60, up $2 or 5 percent. The stock has surged 43 percent in the past year. In after-hours trading, after the quarterly results were announced, it gained another 75 cents.

Whitman characterized the quarter as "strong" but acknowledged Skype challenges.

Skype co-founder and chief executive Niklas Zennstrom stepped down Oct. 1, when eBay announced the impairment charges. EBay chief strategy officer Michael van Swaaij is acting CEO.

"We are disappointed -- obviously -- by the write-down, and we're behind in terms of some financial metrics we had originally anticipated," Whitman told The Associated Press in a phone interview. "Moving to new management was completely the right thing to do. I actually feel confident in the business longer term."

Whitman said, however, there was little she or other executives could have done differently in 2005.

"It's always hard to forecast growth of a 2-year-old. It's now a 4-year-old and it's almost the fastest startup in the Internet," she said.

Skype reported record revenue of $98 million, up 96 percent from a year ago. It's the third consecutive quarter of profitability for Skype, which had 246 million registered user accounts at the end of the third quarter -- up 81 percent from a year ago.

Whitman said the company is working to integrate Skype into eBay's core products more tightly, and it will expand Skype's reach with partnerships.

Skype announced a deal Tuesday with News Corp.'s MySpace, which will offer free Internet phone calls to members of the social network.

Third-quarter revenue from the electronic payment service PayPal was a record $470 million, up 35 percent from a year ago.

Ebay, which ended last quarter with $4.4 billion cash, took in $1.32 billion in sales from ebay.com, shopping.com, StubHub.com and other e-commerce sites -- up 26 percent from a year ago. Of that, 51 percent came from outside the United States.

But the number of people who bid on, bought or listed an item in the past 12 months dropped to 83 million from 83.3 million in the previous quarter -- the company's first sequential dip in its 12-year history.

The number of individual listings dropped 3 percent from a year ago, and eBay store listings plunged 14 percent from a year ago. Individuals and "power sellers" who operate eBay stores listed 556 million items last quarter, down 5 percent from a year ago.

But those goods sold for a total value of $14.4 billion, up 14 percent from a year ago.

Rick Munarriz, who researches technology companies for The Motley Fool, said he was particularly disappointed to see the sequential decline in active users. But it's impressive that eBay is wringing more money out of a shrinking number of listings and users.

"Revenues manage to soar as fewer people are buying," Munarriz said. "Meg Whitman sure knows how to make something out of nothing."

eBay: http://www.ebay.com