eBay Q2 Results Top Estimates

eBay, Inc. (Nasdaq: EBAY) reported stronger than expected results for the second quarter, as revenue rose 97 percent and the number of people using the online auction service grew.

"The top line for the second quarter was in fact the bottom line: eBay's record profits," said Chief Financial Officer Gary Bengier. "These profits were powered by record revenues and the record gross merchandise sales traded on the eBay platform."

Income before charges rose to $13.2 million (US$), or 5 cents per diluted share, from $5.1 million, or 2 cents, in the year-earlier quarter. Net income in the latest quarter totaled $11.6 million, or 4 cents per share; analysts were looking for a profit of 3 cents. Revenue advanced to $97.4 million from $49.5 million.

Some $1.3 billion in goods were traded over the eBay site during the quarter, 108 percent above the first quarter level. The number of registered users grew 183 percent to 15.8 million by quarter's end.

Online Auctions Power Results

eBay, the world's largest online auction company, said online net revenue rose 130 percent from the second quarter to $87.9 million. "Every day, the eBay marketplace becomes indispensable to more people and small businesses around the world," said Chief Executive Officer Meg Whitman.

Most of the quarter's profit came from online auctions. Net revenue from traditional auction subsidiaries "increased slightly from the prior quarter," eBay said.

'Another Solid Quarter'

"eBay delivered another solid quarter, illustrating the company's consistent performance in driving both top and bottom-line growth," said Goldman Sachs analyst Anthony Noto. "We look for continued solid execution on all fronts."

The company recently completed the acquisition of Half.com, a person-to-person electronic marketplace, for $350 million in stock. "eBay's community now benefits from a marketplace combining traditional auction and fixed-price trading," eBay said.

Expansion Plans

Investments and initiatives undertaken during the quarter should help results go forward, Goldman Sachs' Noto said. Besides the Half.com acquisition, eBay began a pilot program for electronic payments through a partnership with Billpoint and formed an alliance with AutoTrader that facilitates car sales . Since April 24th, when the car site was launched, vehicle listings on eBay have increased 56 percent, the company said.

eBay is also keeping pace with European competitor QXL.com (Nasdaq: QXLC) by launching sites in the United Kingdom, Canada, Germany, Japan and Australia. QXL.com has been on an acquisition binge in an attempt to beef up its international offerings.

Both auctioneers have announced plans to expand their services to allow trading from wireless devices.

Not All Rosy

However, what was not mentioned in eBay's statement was its recent decision to scale back its live auction business and instead concentrate on Web auctions of the high price art and antiques that were central to that operation.

After shelling out $260 million just 15 months ago for Butterfield & Butterfield, eBay is now going to lay off about five percent of the live auction house's staff and move its Chicago, Illinois brick-and-mortar operations online.

Butterfield & Butterfield had been holding live auctions in Chicago since acquiring local auctioneer Dunning's in 1998. However, all the furniture, jewelry and other collectibles from the Chicago house will now be sold on the Internet.

Butterfield & Butterfield was established in 1865 in San Francisco, where it currently has two auction houses.

Fourth Largest Auction House

eBay's acquisition of Butterfield & Butterfield, the fourth-largest auction house in the United States, surprised many observers last April because the companies had announced a partnership to add a new premium category to eBay just a few days before the merger was announced. eBay touted the purchase as a means to branch out into more expensive auctions.

The online auctioneer said its customers would gain access to the expertise offered by a team of more than 50 specialists, as well as access to fine art and collectibles.

At the time of the purchase, Butterfield & Butterfield president John Gallo said, "We believe this [deal] will enable a whole new generation of users to safely trade unique, high end items on eBay."

More Brick-and-Mortar Auctioneers Online

Some observers believe that more brick-and-mortar auctioneers moved online as a result of eBay's foray into high-end auctioning. Two months after the eBay purchase, Sotheby's Holdings, Inc. forged a $45 million alliance with Amazon.com to hold online auctions. Also, last fall, LVMH Louis Vuitton Moet Hennesy SA acquired auctioneer Phillips for a rumored $100 million.

LVMH Chairman Bernard Arnault said the play was tailored to take advantage of Phillips' potential for online auctions.

Still, despite first mover status, eBay has been struggling with its high-end strategy for more than a year. In fact, some analysts believe that eBay paid too high a price for a firm that was expected to fetch only $75 million in a planned initial public offering and generated only $20.7 million in revenues in 1998.