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EBay trimming jobs, buying companies to shore up business in turbulent times

October 6, 2008 |  9:47 am

EBay CEO John Donahoe Against the backdrop of an ailing economy, Internet auction house and retailer EBay said today it would lay off 10% of its global workforce, or about 1,000 employees and several hundred temporary workers, in an effort to shore up its businesses. EBay also said it plans to spend about $1.3 billion on acquisitions to pump up its online payment and classified advertising businesses as it tries to brace itself for the spreading financial crisis.

Shares fell as much as 8% in early trading to their lowest level in more than five years. Investors are concerned that EBay's online auction business is vulnerable as consumer spending declines, the U.S. housing market slumps and fuel prices remain high. The auction business has already faced slowing growth over the past few years. Chief Executive John Donahoe warned that economic weakness and the stronger dollar were affecting Ebay.

The San Jose company said the move to cut its 15,000-person work force was unrelated to the potential slowdown in e-commerce. Instead EBay is trying to make its business more competitive in the face of declining profits and stagnant growth.

EBay said it would take a restructuring charge of as much as $80 million in the fourth quarter. It will also eliminate open positions.

It also said it would hit the low end of its revenue forecast of $2.1 billion to $2.15 billion, but exceed the high end of its earnings forecast range of 39 cents to 41 cents per share, before certain items. The company had previously said it would report earnings between 30 cents and 32 cents a share. It will release its earnings on Oct. 15.

EBay had been the subject of layoff rumors for weeks.

The company also announced that it would buy PayPal rival Bill Me Later, an online payments firm based in Timonium, Md., for $945 million in cash and stock. It will combine Bill Me Later with ...

... its PayPal division, which already handles online payments on EBay and for other companies. In the third quarter, PayPal's total payment volume will be around $15 billion, Donahoe said in a conference call with analysts.

In another move, EBay said it would buy the popular Danish classified advertising sites DBA.dk and BilBasen for $390 million, part of its strategy to expand its classified advertising presence in Europe. EBay already owns other sites in Europe, including Spain's LoQUo, Britain's Gumtree and Germany's mobile.de.

EBay has a minority stake in the U.S. online classifieds site Craigslist. Its bid to buy Craigslist prompted the two companies to sue one another earlier this year. EBay is building up the U.S. presence of its European classified advertising site Kijiji as a competitor to Craigslist.

Classified advertising sites are also cheaper to build and operate. Under Donahoe, the new CEO, EBay has been looking to expand into new areas and implement changes to draw more buyers and increase revenues as its traditional auction business has sagged. Some of the moves have been unpopular with sellers.

Despite the market turmoil, Donahoe said EBay decided to move forward with the acquisitions because of its "strong financial position."

Donahoe said that EBay has "a strong set of assets with leadership positions in multiple businesses."

"I am committed to doing what it takes to maintain and extend these positions to drive long-term growth for our company," he said.

Donahoe told CNBC he expects the job cuts and the acquisitions will position EBay to be more nimble. He also predicted more bargain shoppers would turn to EBay during the upcoming holiday season.

"We think consumers will be hunting for those deals," he said.

-- Jessica Guynn

Photo: EBay CEO John Donahoe. Credit: EBay

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