EBay Falls as Average Selling Price Drops on Its Retail Sites

By Beth Jinks

July 16 (Bloomberg) -- EBay Inc., the world's largest Internet auctioneer, fell 6.6 percent in late U.S. trading after reporting that people are paying less for items on its retail sites.

The average selling price fell 6 percent in the second quarter, slowing growth in spending by online buyers. Gross merchandise volume, the value of all goods that users sold on EBay's sites, rose 8 percent, the smallest increase in at least five quarters, EBay said today in a statement.

The decelerating sales growth underscored growing demand for discounts as higher food and gasoline prices eat into household budgets. Chief Executive Officer John Donahoe's strategy of removing most upfront fees boosted listings and encouraged bargain-hunting.

Consumers are ``trading down to lower-priced items,'' particularly in the U.S. and U.K. where economies are slumping, Chief Financial Officer Robert Swan said on a conference call. ``We'll feel the effects of that until the economy rebounds.''

The San Jose, California-based company said net income rose 22 percent to $460.3 million, or 35 cents a share. EBay also said that Rajiv Dutta, who oversaw auction and retail sales, will retire in October and be replaced by Lorrie Norrington, his operating chief.

Profit excluding some items was 43 cents, beating analysts' estimates by 2 cents. Revenue in the three months ended June 30 rose 20 percent to $2.2 billion from $1.83 billion, EBay said.

Full-year profit excluding items may rise to $1.72 to $1.77 a share, higher than it previously forecast, EBay said today in a statement. Analysts surveyed by Bloomberg estimated $1.74.

`Making Changes'

``EBay is making changes now it really should have made three or four years ago,'' Timothy Boyd, an analyst with American Technology Research in Greenwich, Connecticut, said in a Bloomberg Television interview today. Some analysts had estimated the value of merchandise transactions to climb 13 to 14 percent, he said.

EBay fell $1.86 to $26.24 at 7:29 p.m. after the results were released. Earlier, the shares rose 4.5 percent in Nasdaq Stock Market composite trading, giving it a 15 percent decline for the year.

Nineteen analysts surveyed by Bloomberg estimated second- quarter profit, excluding some items, of 41 cents a share. Seventeen predicted sales of $2.16 bill1ion. Profit a year earlier was $375.8 million, or 27 cents.

Third Quarter

Third-quarter profit, excluding some costs, may be 39 cents to 41 cents a share, on sales of as much as $2.15 billion, EBay said. Analysts estimated earnings of 41 cents on revenue of $2.17 billion.

``Average sales price inflation is not something we can manage but it's something that will play its way out,'' Donahoe said on the call. ``We're confident, with buyers coming back and increasing their frequency, over time,'' merchandise volume and revenue will rebound, he said.

PayPal revenue climbed 33 percent to $602 million as the payment unit signed agreements with Delta Air Lines Inc. and Blockbuster Inc.

Revenue from Skype, its Internet-telephone unit, climbed 51 percent to $136 million in the quarter, and added almost 29 million users. Skype named Josh Silverman as its chief executive officer in February.

EBay's marketplaces revenue jumped 13 percent to $1.46 billion in the second quarter. Overseas sales make up 56 percent of EBay's revenue. New marketplace listings rose 19 percent to $666.9 million from a year earlier, the third consecutive quarterly increase, EBay said.

Fraud Detection

EBay boosted its fraud detections and removed suspect items from its sites earlier, which contributed to lower average sales prices, Swan said in an interview today.

``We've made a conscious effort to try to stimulate activity in low-priced items on the site through promotions, in all our big markets, particularly Germany,'' Swan said. ``Those low-priced items convert at a higher rate.''

Automobile sales' contribution to gross merchandise volume growth decelerated to 0 percent in the second quarter, from about 7 percent in the first quarter, as the market for used cars fell in the U.S., Swan said.

Revenue from fees collected from vehicle sales rose 11 percent from a year earlier as EBay shifted car advertising onto local classified sites.

Donahoe, 48, joined EBay in 2005 from Bain & Co.. He's said his three priorities for the company are improving its fixed- price online retail business, growing PayPal and bolstering customer safety and trust.

EBay announced June 19 it's expanding insurance for buyers and sellers using PayPal across the 190 countries it operates, and offering discounts to some big sellers. In January, EBay bought Israeli software company Fraud Sciences Ltd. for $169 million to improve PayPal security.

A New York court this week said EBay isn't responsible for the sale of fake Tiffany & Co. jewelry on its Web site. The U.S. win contrasts with a French court ruling last month that ordered EBay pay $63.6 million to LVMH Moet Hennessy Louis Vuitton SA, over claims the site didn't do enough to block the sale of counterfeits.

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