UPDATE 3-EBay net dips 3 pct, outlook unchanged; stock down

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UPDATE 3-EBay net dips 3 pct, outlook unchanged; stock down
Wed Apr 19, 2006 6:47 PM ET

Updates with CFO and analyst comments, share price)

By Eric Auchard

SAN FRANCISCO, April 19 (Reuters) - Web auctioneer eBay Inc. <EBAY.O> on Wednesday posted a 3 percent drop in quarterly net profit due to stock compensation costs and stuck to a 2006 revenue forecast at the low end of Wall Street's targets, sending shares down 5 percent.

Revenue growth at the Web giant, based in San Jose, California, is slowing, although some analysts said the forecast chiefly reflected a conservative company stance rather than an indication of further major slowdowns.

Net income for the first quarter dipped to $248.3 million, or 17 cents per diluted share, compared with $256.3 million, or 19 cents per share, a year earlier. Excluding one-time items, the latest quarter profit was 24 cents a share -- matching Wall Street's consensus expectation.

Net revenue rose 35 percent to $1.39 billion, matching Wall Street's consensus forecast, but marking a deceleration in year-over-year revenue growth compared to previous quarters.

"The question is if new international markets are big enough and growing fast enough to offset the deceleration," said Martin Pyykkonen, an analyst with Hoefer & Arnett in Denver.

Chief Financial Officer Bob Swan said that as the company's auction business has become more mainstream, it more closely resembles retail sales patterns, leading to stronger growth in the fourth quarter and a slower pace in the first quarter.

Changes during the latest quarter in some of eBay's sales formats in its core U.S. and Canadian markets, the imminent launch of a new fixed-price shopping format, and looming competition in its third biggest international market, South Korea, are making eBay cautious in the near-term.

"With a strong first quarter and a few things we want to monitor, we think it's prudent at this stage to be conservative," Swan said on a conference call with investors.

"As we go into the second and third quarter ... those are traditionally slow quarters," he said.

FORECAST SEEN CONSERVATIVE

Excluding the impact of stock compensation costs, eBay said its profit was 21 cents a share.

In a statement, the company said it still expected revenue for the full year to range between $5.7 billion to $5.9 billion -- an outlook Wall Street generally views as conservative.

Wall Street analysts have expected full-year revenue, on average, of $6.02 billion -- up 32 percent from 2005 -- with forecasts ranging between $5.80 billion and $7.44 billion, according to Reuters Estimates.

"I wouldn't read too much into the guidance. They have always been somewhat conservative and are probably saving something for their analyst meeting," said Jason Schrotberger, an analyst and portfolio manager at Turner Investment Partners, which holds eBay shares.

EBay forecast second-quarter net revenue in a range between $1.37 billion and $1.42 billion, compared with Wall Street's consensus forecast of $1.42 billion.

For the recently ended first quarter, U.S. revenue grew 30 percent to $527.2 million. Hurt by foreign currency translation, international revenue grew 25 percent to $493.0 million. Excluding currency effects, revenue rose 32 percent.

Revenue of EBay's online payments business, PayPal, grew 44 percent to $335.1 million. Excluding currency effects, the payments business would have grown 47 percent in first quarter. The number of accounts also grew 47 percent to 105 million.

Skype, the recently acquired communications business, generated revenue of $35.2 million in Web telephone calling sales, up 42 percent from the three-month period ended in December. Skype said it had 94.6 million registered users at the end of March.

Shares of eBay have lost ground so far this year on concerns that growth in its core online auction business is maturing. The stock is off 6 percent this year.

EBay's stock was valued at 38 times 2006 earnings estimates. That compared with Internet peers Google Inc. <GOOG.O>, trading at 46 times times 2006 forecasts, and Yahoo Inc. <YHOO.O>, trading at 37 times 2006 forecasts, according to a valuation analysis by broker Piper Jaffray.

Shares of eBay were down $1.92 to $38.43 in after-hours trade on Inet, after rising 3.8 percent in regular Nasdaq trade.