EBay shares rise to sound of “smooth separation” from PayPal

Shares at EBay rose the most in four months after the company said it was on track for a “smooth separation” of its PayPal business and that profit growth was recovering after the company cut costs.

The elimination of 2,400 jobs - 7 percent of the San Jose, California-based company’s workforce - pushed first-quarter profits and forecasts above analysts’ estimates.

That also helped make up for sluggish sales growth amid intense competition from Amazon and the impact of a stronger dollar, which cut into overseas revenue.

The recovery also blunted concerns that EBay would lose some of its value once it separates from PayPal, which overtook the marketplace business as the leading source of revenue for the first time since its acquisition in 2002.

And since the company had previously said it expected to split in the second half of the year, the more precise timeline was seen as good news.

"Without cost cuts, they would have had to take their guidance down at least five cents per share," said Gil Luria, an analyst at Wedbush Securities.

“That’s the major thing driving the stock up, that they were able to keep their guidance for the rest of the year.”

EBay shares gained 4.3 per cent this morning in New York. The stock was up 1.1 per cent this year through Wednesday’s close.

Profit before certain items in the first three months of 2015 was 77 cents a share, compared with analysts’ average prediction for 70 cents.

EBay gave a profit outlook of 71 cents to 73 cents for the second quarter, which also topped estimates.

The results also show the Web marketplace is recovering from a security breach that forced users to change passwords and a Google search change that curbed traffic to the site.

The marketplace business drew 157 million shoppers in the latest period.

Net income in the first quarter was $626 million, compared with a loss of $2.33 billion a year earlier, EBay said in a statement. Sales rose 4.4 per cent to $4.45 billion.

"The marketplaces business has stabilized and is moving toward growth and PayPal is very well positioned for strong growth and a competitive position," EBay chief executive John Donahoe told Bloomberg.

“You have two independent companies which can each chart their own destinies.”

EBay’s marketplace, an e-commerce pioneer, is facing aggressive competition from Amazon as well as brick-and-mortar retailers developing their own online businesses.

Global e- commerce sales will hit $1.59 trillion this year, up 21 per cent, according to EMarketer.

EBay’s marketplace sales growth has lagged behind that pace so far this year, coming in at 7.3 per cent in March, 5.1 per cent in February and 6.8 per cent in January.

- Bloomberg