EBay's Profits Surge, But Slower Growth FearedEBay's Profits Surge, But Slower Growth Feared

SAN FRANCISCO (AP) -- Profits surged again at eBay Inc., but its third-quarter performance wasn't strong enough to quell fears among Wall Street analysts that the online auction leader is facing slower growth.

The technology giant said Thursday that profits leaped to $103.3 million, or 16 cents per share, in the quarter that ended Sept. 30. In the comparable period last year, eBay showed net profits of $61.0 million, or 11 cents per share.

That amounted to a 69 percent increase in profits. Meanwhile, revenue surged 84 percent to $530.9 million.

Still, eBay stock plunged more than 6 percent in the extended session Thursday after closing at $57.50 on the Nasdaq Stock Market.

Excluding one-time items such as construction or expansion of international customer service centers, eBay reported "pro forma" earnings of 18 cents per share, the consensus estimate of Wall Street analysts. The company had told investors to expect 17 cents per share.

Executives of the San Jose, Calif.-based company credited double-digit profit and revenue increases to international sales, particularly in Germany, England, and South Korea. They expressed confidence that major television and print advertising campaigns in the United States and Germany--as well as the introduction of eBay gift certificates--would boost holiday spending, even as some economists are bracing retailers for a Grinch-like Christmas.

The company's gross merchandise sales, the total value of everything sold on the site, was a record $5.8 billion--a 53 percent increase from $3.8 billion in the third quarter of 2002.

Chief financial officer Rajiv Dutta hinted in a conference call with analysts that eBay, known for its financial conservatism, may embark on a buying spree next year with some of its $2.6 billion in cash.

"We have enormous potential," Dutta said. "Our fundamental business remains very strong, with vibrant metrics. ... We were struck by the number of extremely attractive opportunities that lie ahead."

Despite such optimism, several prominent investment researchers expressed doubt this week over whether the auction giant can continue its tradition of exceeding expectations. EBay stock has remained relatively impervious to the bursting of the dot-com bubble and remains one of the highest valued technology stocks.

The newest earnings report, some analysts said, may signal the end of eBay's youthful spurt and the beginning of a slower-growth maturity.

"The growth curve is flattening out for them," said Gene Alvarez, vice president of technology research at Meta Group. "Their best hope is to get customers who are switching to broadband, maybe reclaim some customers who left because they were frustrated with how slow the site was on dial-up access."

Analyst Lanny Baker of Salomon Smith Barney Research downgraded eBay from "hold" to "sell" earlier this week, giving the company a price target of $48. He was concerned about whether customers would continue to use eBay Motors, which accounts for about a quarter of eBay's gross merchandise sales.

EBay CEO Meg Whitman strongly countered those doubts. She said eBay executives would begin working more closely with individual automobile dealers to address the "growing imbalance" of the popular division, which has far more shoppers than vehicles listed.

More than 37 million people bid, bought, or listed items on EBay in the last year. That's a 55 percent increase over the 24.2 million active users in the first three months of 2002.

Year to date, eBay earned $299.3 million, or 46 cents per share, on revenue of $1.5 billion. In the first three quarters of 2002, the company made $162.9 million, 29 cents per share on sales of $800 million.

EBay expects revenue as high as $590 million and earnings of up to 21 cents per share in the fourth quarter, $15 million more than previous estimates. EBay expects revenue as high as $2.9 billion and earnings up to 98 cents per share in 2004.