Buy It Now? eBay profit hike cheers investors

Just when it seemed to be flagging, eBay has surprised everyone by recording a 22% jump in profits...

Last Updated: 31 Aug 2010

eBay’s new chief executive John Donahoe said revenues at the world’s biggest auction site surged to $2.2bn in the first three months of 2008, almost 25% higher than last year’s figure, while profits jumped 22% to $460m. Both numbers were higher than analysts were predicting, leading Donahoe to claim that eBay had finally ‘turned the corner’ (that phrase beloved of new CEOs) as a result of its recent website revamp and pricing changes.

Donahoe only took over from ex-boss Meg Whitman at the end of March, so he can’t technically claim any credit for it. But it’s still a much more upbeat start to his tenure than anyone was really expecting. He’s instigated some big changes to its site in recent months in an attempt to improve the user experience and tighten up security (Australian users now have to use PayPal, for instance) - and although he admits that there’s a long way to go, so far the changes seem to be working. 

Of course the weakness of the dollar has been a big advantage for eBay in recent months. The auction site reports its results in dollars, but makes most of its money outside the US – so because the greenback’s currently worth so little against other major currencies, all eBay's non-US sales translate into more dollars than they would have done in previous years. And with international sales rising by almost a third, this boosted revenues by more than $100m – a nice reward for doing nothing.

As a result of all this good news, eBay is raising its forecasts both for the coming quarter and the rest of the year: it now expects to make just over $2.1bn in the next three months, and somewhere between $8bn and $9bn for the year as a whole.

That said, this year’s unlikely to be completely plain sailing. Even if eBay’s got less to fear than most from an economic slowdown, it’s still being threatened with various lawsuits from luxury brands, who are claiming that it doesn’t properly monitor the sale of fake goods on its site. And there’s the ongoing problem of what to do with Skype – the internet telephony division actually saw revenues jump 61% last quarter to $126m, but it’s still a long way from justifying its astronomical price tag.

Donahoe has clearly steadied the ship, given that the share price is up by almost a quarter since his appointment – but he’s going to have a hard job maintaining that kind of progress...

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