EBay Announces Aggressive Buyback

A car drives by the offices of eBay and PayPal in San Jose, Calif., Wednesday, Jan. 24, 2007. EBay Inc. is expected to post fourth-quarter earnings after the bell. (AP Photo/Paul Sakuma) (Paul Sakuma - AP)

SAN FRANCISCO -- EBay Inc. is following its 24 percent jump in fourth-quarter profit with an ambitious stock buyback that Wall Street interpreted as a measure of executives' bullishness for future growth.

EBay shares increased $1.38, or nearly 5 percent, to close Wednesday at $30 on the Nasdaq Stock Market before the earnings report was released. The shares jumped to $33.98, up an additional 13.2 percent, in after-hours trading.

The San Jose-based e-commerce powerhouse announced Wednesday it would repurchase up to $2 billion of common stock within the next two years. Stock buybacks are considered a quick way to pump up a flagging stock price _ if companies have plenty of cash and are confident about future earnings growth.

This is the second major repurchase program at eBay in the past year. The company repurchased 31 million shares for about $1 billion last quarter.

The solid earnings report and buyback come almost exactly two years after eBay stock slipped precipitously on concerns about whether the company could withstand competition from other e-commerce leaders, particularly Google Inc. Analysts said the stock may now be a value relative to many of its rivals.

"This is a stock that since January of 2005 has done nothing but fall down the stairs of Wall Street with a face plant on each step down," said David M. Garrity, director of research for Dinosaur Securities LLC. "Now that they appear to have hit bottom, there's clearly an opportunity here for management to restore their relationship with the investment community, and certainly this enhanced buyback program is an important step in the right direction."

Thanks to scorching holiday sales _ particularly in the United States, United Kingdom and Germany _ eBay reported Wednesday it earned $349 million, or 25 cents per share, for the three months ended Dec. 31. It earned $279 million, or 20 cents per share in the year-ago period.

Fourth-quarter revenue totaled $1.72 billion, up 29 percent from $1.33 billion in the year-ago period.

Excluding charges unrelated to ongoing operations, eBay earned $431 million, or 31 cents per share, up nearly 27 percent from the same quarter last year, when the company earned $340 million, or 24 cents per share.

On that basis, which does not comply with generally accepted accounting principles, eBay was expected to earn $402 million, or 28 cents per share, on sales of $1.67 billion, according to analysts polled by Thomson Financial.

During the holiday quarter, more than 81 million active eBay users exchanged $14.4 billion in goods, ranging from pricey real estate and computer servers to Pez dispensers and clothing. The hottest sellers last quarter were automobiles and consumer electronics, in particular the Nintendo Wii and Sony PlayStation 3 gaming consoles.

President and Chief Executive Meg Whitman said the company raised first-quarter 2007 sales guidance to a range of $1.67 billion to $1.72 billion. Excluding special items, eBay expects earnings per share to be in the range of 28 cents to 30 cents per share.