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eBay Slips As Bidders Balk

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Economic slowdown stings online auctioneer.

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So much for selling to the highest bidder.

Online auction powerhouse eBay (EBAY) reported weak fourth quarter numbers yesterday, as revenues slipped from a year ago for the first time in the company's history. Attributing its troubles to a stronger dollar (which hurts revenues from overseas markets) and the global economic slowdown, CEO John Donahoe is spearheading efforts to shift sales away from its core auction business, focusing instead on traditional, fixed price sales.

According to Bloomberg:

  • Revenue fell 6.7% from last year to $2.07 billion.

  • Earnings slipped to $367 million, or $0.29 per share from $0.39 per share in Q4 2007.

  • Revenue in its mainstay marketplace business slipped 16%.

  • First quarter 2009 earnings guidance of $0.32 - $0.34 per share was lower than the expected $0.39 per share.

Many investors had been hopeful eBay would thrive during the economic downturn, as consumers seek out more attractively priced goods. However, with buying activity drying up and other online commerce sites like Amazon.com (AMZN) pushing auction platforms of their own, eBay is facing an increasingly challenging environment.

As it has rotated its business away from its core auction business buy acquisitions of StubHub, PayPal, Skype and launching Kijiji to compete with free classified listing site Craigslist, eBay has increasingly exposed itself to broader economic conditions. And with 55% of its marketplace business coming from outside the US, the global economic slowdown isn't providing eBay much benefit from geographic diversification.

eBay also said its PayPal unit posted strong results, with revenues rising 11% to $623 million. Of note, the company's online credit service, Bill Me Later saw particularly high activity. PayPal earns interest income like a credit card company if users opt for Bill Me Later, which gives them the option of deferring payments.

Deferring payments, apparenly, is a popular choice in today's economy.

No positions in stocks mentioned.

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