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WebSite, Design and Web Hosting News - eBay to raise fees for its online stores
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eBay to raise fees for its online stores

2006-07-20 10:05:00

It has been clear to investors for some time that eBay Inc. has been losing the luster that turned the online auctioneer into an e-commerce bellwether. Now, CEO Meg Whitman is finally acknowledging things have been off kilter and is hoping to set things right by raising fees on the online stores that had been diverting traffic from eBay's auctions.

"We are trying to get back to the essence of eBay," Whitman said Wednesday during an interview.

Wall Street embraced the message as eBay's shares rose nearly 6 percent in extended trading Wednesday evening.

The announcement of the higher fees for eBay's "store inventory" segment coincided with the release of a second-quarter profit that fulfilled analysts' expectations.

Simply matching estimates hasn't been good enough for investors, who have been thrashing eBay's stock since the end of 2004. Whitman also hopes to make amends with Wall Street by spending up to $2 billion to buy back eBay's shares during the next two years.

It marks the first stock buyback in eBay's nearly eight-year history as a publicly held company.

But the amount budgeted for buying back eBay's shares looks minuscule next to the $40 billion in stockholder wealth that has evaporated since the end of 2004 as the company's stock lost more than half its value.

The downturn reflects concerns about eBay's slackening growth, international competition, and, more recently, how the company's online payment service might be hurt by a rival offering from Internet search leader Google Inc., which is dangling lower processing fees and other incentives to entice merchants.

Despite those challenges, eBay has still be doing well.

The San Jose, Calif.-based company earned $250 million, or 17 cents per share, for the three months ended in June. That represented a 14 percent decrease from $291.6 million, or 21 cents per share, at the same time last year.

It wasn't an apple-to-apples comparison because of new accounting rules that require publicly held companies to record the costs of employee stock options much differently than last year.

If not for this year's accounting revisions, eBay said it would have earned 24 cents per share — a figure that matched the average estimate among analysts surveyed by Thomson Financial.

Revenue for the period totaled $1.41 billion, a 30 percent increase from $1.09 billion a year ago. The revenue also met analysts' expectations.

Excluding its stock option expenses, eBay forecast third-quarter earnings 1 to 2 cents below the current average analyst estimate of 24 cents per share. That conservative stance is a familiar one for eBay, which has always cautiously managed Wall Street's expectations.

The upcoming price increase signifies a more aggressive attitude.

Beginning Aug. 22, eBay will raise a variety of fees for merchants operating online stores on the site. The change, affecting an area called "store inventory," could apply to up to 541,000 stores worldwide that sell on eBay. The new prices will raise fees by an average of 6 percent for affected merchants, eBay estimated.

The company isn't changing the listing fees for any other format, including its auctions. EBay ended June with 203 million registered users, but the company doesn't break down how many of those are sellers.

By raising the costs to operate stores, eBay hopes to push more listings back into the auction format, Whitman said. Store inventory listings represent about 83 percent of the volume on eBay's site but generate just 9 percent of the gross sales volume, according to the company.

The rising store inventory listings have "diluted the magic of eBay," Whitman said.

While eBay tweaks its listing, Whitman said the company isn't worried about Google hurting its PayPal service, noting it already has fended off several other competitive threats. "We are going to innovate as we always have."

PayPal fared well in the second quarter, generating $330.7 million, a 39 percent increase from the same time last year. PayPal ended June with 114 million accountholders, a 44 percent increase from a year ago.

EBay also is bracing for a backlash against its forthcoming fee increase, although Whitman suspects the complaints will be less strident than last year when it raised listing fees for a far larger group of sellers.

"Whenever we do a fee increase, our community doesn't like it, but I think they will understand the reasons why we are doing this," Whitman said.

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