eBay sales, profit rise as PayPal expects to sail off in third quarter

eBay sales, profit rise as PayPal expects to sail off in third quarter

The e-commerce pioneer's overall results hid the differing paths of eBay's two main businesses, with PayPal growing and eBay.com floundering.

eBay

eBay's year got off to a strong start, with the company on Wednesday reporting better-than-expected sales and some lower costs, likely benefiting from previously announced job cuts.

The e-commerce pioneer also said its planned spinoff of PayPal will happen in the third quarter this year. The company previously disclosed that the split would occur sometime in the second half of the year.

Investors apparently liked the news, sending shares up more than 5 percent in after-hours trading.

The positive companywide numbers, though, masked over the different trajectories of eBay's two main businesses. While its PayPal payments unit continues to expand at a rapid clip, its marketplaces unit, mainly eBay.com, struggles to find new growth. The core marketplace business doesn't have much time now to figure out a plan forward before it loses PayPal as a growth engine.

For the first quarter, the payments unit, which includes PayPal, posted revenue of $2.11 billion, up 14 percent. Marketplaces revenue slid 4 percent, to $2.07 billion.

The different paths of the marketplace and payments businesses were on display during a conference call with analysts Wednesday afternoon. Dan Schulman, the incoming PayPal CEO, discussed huge opportunities to expand his future company in the mobile payments space and commerce. Meanwhile, Devin Wenig, the incoming eBay CEO, talked about plans to stabilize his business.

"Cash is digitizing, the world of money is digitizing," Schulman said, describing that trend as a huge growth opportunity for PayPal.

eBay, which started 20 years ago as an auction site for collectibles and other items, has grown into a broad marketplace for goods through third-party sellers, similar to Amazon's third-party marketplace. It also offers the PayPal payment service and a business that helps merchants sell products over the Web, known as the Enterprise unit.

eBay said in September that it's spinning off the faster-growing PayPal, which will run as its own publicly traded company. Even after the separation, though, the two companies agreed to continue working together, with PayPal expecting to handle about 80 percent of eBay.com's merchandise sales.

"I feel very good about the performance of our teams at eBay and PayPal," eBay CEO John Donahoe, who plans to step down after the split, said in a statement. "Each business is executing well with greater focus and operating discipline as we prepare to separate eBay and PayPal into independent publicly traded companies."

In January, eBay said it would trim about 7 percent of its workforce, or 2,400 jobs, during the first quarter, primarily in its core marketplaces business, as it prepares for the separation. The company had 34,600 employees at the end of 2014. Also in January, it disclosed plans to sell or spin off the Enterprise unit because it didn't fit with the rest of the business. eBay formed its Enterprise unit after purchasing GSI Commerce four years ago for $2.4 billion. Enterprise revenue in the first quarter was $288 million, up 7 percent.

These breakups will return eBay to its origin as strictly a seller of goods. Also, the split should give PayPal more freedom to work with other companies, such as Amazon.

To make that new eBay.com more desirable, Wenig said the site will focus on improving how it categorizes its products on its site so they are easier to find on eBay.com and on search engines, and also work on making it easier for people to sell items, hopefully tapping into the tens of billions of dollars in unneeded items sitting in consumers' closets and garages.

For the first quarter, eBay reported net income of $626 million, or 51 cents a share, compared with a year-earlier loss of $2.33 billion, or $1.82 a share. Excluding tax-related costs from a year ago and other items, adjusted earnings were 77 cents a share, up from 70 cents a share.

Revenue rose 4 percent, to $4.45 billion.

Analysts polled by Thomson Reuters expected per-share earnings of 70 cents and revenue of $4.42 billion.

Updated, 3:28 p.m. PT: Added information from analyst call and more details.