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Oct 18, 2017

eBay shares fall as company reports lower adjusted profit forecast

eBay headquarters in San Jose, California

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EBay Inc (EBAY.O) warned Wall Street on Wednesday that profit this quarter could fall below analysts' estimates as it invests in marketing and a revamped website to attract more shoppers, sending shares down more than 5 per cent in after-hours trade Wednesday.

The online marketplace is making a big push to catchup to Amazon.com Inc (AMZN.O) with three-day guaranteed delivery and a more user-friendly website, hoping to distinguish itself as a haven for specialty items rather than commodity products.

It said marketing expenses rose by nearly 5 per cent last quarter as it got that message across to customers and potential new users.

Factoring in the higher costs, eBay forecast fourth-quarter adjusted profit, excluding some costs, of between 57 cents and 59 cents per share. On that basis, analysts on average were expecting a profit of 59 cents per share, according to Thomson Reuters.

For all of 2017, it narrowed its forecast for adjusted profit, now expecting US$1.99 to US$2.01 per share.

In a sign the investments may be paying off, gross merchandise volume - the value of goods sold on eBay websites - rose 8 per cent to US$21.7 billion in the just-ended third quarter. That is the fastest growth eBay has reported in three years.

"Our customers are responding to the significant product enhancements we have been making, and this is reflected in our results," chief executive Devin Wenig said in a statement.

Revenue in the quarter increased 8.7 per cent to US$2.41 billion, edging past analysts' estimate of US$2.37 billion. Net income rose 27 per cent to US$523 million.

Despite this growth, the San Jose, California-based company said its operating profit margin decreased slightly to 24 per cent in the quarter, from 24.4 per cent a year earlier.

"Technology investments are partly responsible, but I'm guessing the market is also concerned that there's more to the story," said Morningstar analyst R.J. Hottovy.

StubHub, the company's marketplace for tickets, also raised a "potential 'yellow flag,"' Baird Equity Research analyst Colin Sebastian said in a note. The unit's 2 per cent growth in GMV lagged the rest of the business, and CEO Wenig said a tough events landscape would pressure results further this year.

EBay reported nearly 2 million more active buyers in the third quarter to reach 168 million, excluding customers in India. Active buyers tallied at 171 million in the second quarter, before eBay sold its India business to Flipkart in August.