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EBay posts first-ever quarterly sales drop

January 21, 2009 |  2:12 pm

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EBay reported lower fourth-quarter profit and its first-ever drop in quarterly sales, as the global economic slowdown and the stronger dollar hurt its business.

The online auction company recorded net income of $367 million, or 29 cents a share, for the last three months of 2008. That was down 31% from $531 million, or 39 cents a share, a year earlier.

Net revenue fell 7% to $2.04 billion, reversing the persistent growth EBay has posted since its founding in 1995. Sales at the Marketplaces unit, which includes its core online auction business as well as, StubHub and other online businesses, fell 16% to $1.27 billion.

The San Jose company's shares fell nearly 6% in after-hours trading, giving back all the gains they made in regular trading, when they rose 73 cents to $13.28.

Excluding some items, EBay reported income of 41 cents a share versus 45 cents a year ago. That beat some analysts' estimates of 40 cents a share. EBay said it expected first-quarter revenue to be $1.80 billion to $2.05 billion with net earnings of 21 to 23 cents a share and operating profit of 32 to 34 cents a share.

For the full year, EBay reported net income of $1.78 billion, or $1.36 a share, on sales of $8.54 billion, compared with net income of $348 million, or 25 cents a share, on sales of $7.67 billion in 2007.

“While the holiday season was tough and competitive, our overall results for 2008 were strong,” Chief Executive John Donahoe said.

The drop in fourth-quarter sales wasn’t a surprise. When EBay ...

... reported its third-quarter earnings in October, it warned that a drop-off in consumer spending that began in August would probably hurt Christmas sales and result in a drop in fourth-quarter revenue.

The company also said that the faltering economy and turmoil in global credit markets probably would continue to weigh on consumer spending in 2009. In a recent report, analysts at Piper Jaffray predicted that online sales would fall 10% industrywide this year "as consumers rein in discretionary spending and significantly increase personal savings." E-commerce sales slid 3% in the fourth quarter, according to research firm ComScore.

EBay said in October that it would reduce its 16,000-person workforce by 10% as part of a turnaround effort launched by Donahoe, who took over as CEO in March when Meg Whitman retired. Most of the layoffs were in the company’s auction business, which accounts for two-thirds of EBay’s revenue.

Growth in active users of EBay’s online auction business “has slowed dramatically,” analyst Laura Martin of Soleil Securities Group noted in a recent report. On the upside, she noted EBay had reduced its dependence on auctions, with its PayPal online payments service, Skype Internet phone operation and other non-auction businesses contributing a growing chunk of revenue.

EBay is the first of the big Internet companies to release results for the last quarter of 2008. Google is due to report Thursday, followed by Yahoo and next week.

-- Martin Zimmerman

Photo credit: Ryan Fanshaw