Maturing eBay Exceeds ExpectationsMaturing eBay Exceeds Expectations

SAN JOSE, Calif. (AP) -- Strong holiday sales helped EBay Inc. surpass Wall Street's fourth-quarter earnings expectation, but executives acknowledged that the online auction powerhouse is starting to experience some of the burdens that challenge more established companies.

Chief executive Meg Whitman said in a conference call Wednesday that eBay, founded as an antique and collectibles auction site in 1995, was growing faster than Microsoft, Dell, or Wal-Mart when those companies were the same age.

But the San Jose, Calif.-based company is also taking on the significant costs and legal burdens of other technology and retail bellwethers. Chief financial officer Rajiv Dutta said 2003 will go down as an "inflection year" as eBay matures.

For the three months ended Dec. 31, eBay earned $142.5 million, or 21 cents per share. That's a 64 percent jump from the $87 million, or 14 cents per share, it earned in the same period of 2002.

Excluding special items, eBay earned a record $157 million, or 24 cents per share, compared to $87.6 million, or 14 cents per share in the last quarter of 2002.

Analysts were expecting eBay to earn 22 cents per share cents per share, according to a survey by Thomson First Call.

Fourth-quarter revenue was $648.4 million, up 57 percent from $413.9 million in same period of 2002.

EBay spent $96 million on "general and administrative" expenses in the fourth quarter of 2003, up 52 percent from the $63.3 million it spent in the same period of 2002.

Dutta blamed the spike on legal expenses but would not elaborate on whether the company had settled long-simmering patent infringement and other lawsuits, or whether the extra expenses were recurring or one-time costs.

"We resolved several long-standing legal matters related to PayPal," Dutta said of eBay's lucrative payment processing subsidiary. "Companies, particularly those perceived to have deep pockets, are often the subject of litigation."

Quarterly sales and marketing expenses also inched up, to $172.8 million, mainly a result of marketing campaigns to woo new customers in China and Europe.

For the entire year, eBay earned $441.8 million, or 67 cents per share, up 77 percent from 2002 earnings. EBay's revenue last year was $2.17 billion, up 78 percent from 2002.

Like other U.S.-based companies with global tentacles, EBay received an unexpected boost from the relatively weak dollar and strength of foreign currencies, particularly the euro. Favorable exchange rates accounted for about $10 million in added revenue in the fourth quarter, and $26.7 million throughout 2003, Dutta said.

Dutta boosted the company's guidance to Wall Street analysts for 2004. EBay expects annual revenue of at least $3 billion, about $100 million more than executives were predicting several months ago. EBay boosted its estimate for 2004 earnings from 98 cents to $1.04 per share.

Analysts praised the company's rocketing growth, but some questioned how long eBay could continue its pace--particularly in the United States, which is growing far more slowly than Asia and Europe.

Transaction revenue from international operations was $210.5 million in the fourth quarter, a 96 percent jump from the same period of 2002. Transaction revenue in the United States grew a relatively modest 38 percent, to $291.6 million.

"Driving memberships in the United States is crucial," said technology analyst and Meta Group vice president Gene Alvarez. "You have your eBay loyalists, but you have a wide stretch of the population eBay has yet to reach. Maybe they'll be helped by the deployment of broadband capabilities because a lot of people really hate doing auctions over slow dial-up connections."