EBay's Fortunes Fading with the Weak Economy

EBay, the online auction company extraordinaire, is feeling the pinch of an ailing economy. It reports a sharply lower fourth-quarter profit, and its first ever drop in actual sales for the period.

It's no secret to most of us: Americans sharply cut their holiday budgets this year, and didn't participate much in EBay's countless online auctions. In fact, prices were up at most of the site's auctions, and bargains seemed hard to find. In what's described as one of the worst environments for consumer demand in decades, EBay reports that its profits fell 31% in the fourth quarter, in a rare revenue decline, while actual revenue fell 6.7%. EBay also admits that it doesn't see economic conditions changing in the coming quarter, and has issued numbers for its revenue and profits that fall below Wall Street's estimates. The online auction company blames the stronger dollar for hurting its business. Ebay has shown steady growth since it was founded in 1995. But this past quarter, sales at the Marketplaces unit, which includes its core online auction business as well as Shopping.com, StubHub and other online businesses, fell 16%. But EBay's new Chief Executive, John Donahoe isn't fazed by the situation.

“While the holiday season was tough and competitive, our overall results for 2008 were strong."

Back in October, EBay announced it was cutting its workforce by 10%, or 16,000 people. It was part of a turnaround effort launched by Donahoe, who took over as CEO in March after Meg Whitman retired. Most of the layoffs were from the firm's auction business, which accounts for two-thirds of EBay's overall revenue. Analyst Laura Martin of Soleil Securities Group says overall,

"the online auction business has slowed dramatically, But EBay reduced its dependence on auctions, with its PayPal online payments service, Skype Internet phone operation and other non-auction businesses contributing a growing chunk of revenue."

EBay is still the most-visited site on the World Wide Web. But even with 84.5 million visitors in December, that was about 4% lower than the year before. The company is based in San Jose, California.