Skype makes eBay red

Skype makes eBay red

Despite a large write-down of its Skype unit, eBay posted better than expected third-quarter results Wednesday.

After the close, the online auction site reported a net loss of $936.6 million, or 69 cents per share, due to $1.4 billion in previously announced charges related to Skype, its online telecommunications division. In the same quarter last year, the company earned $280.9 million, or 20 cents per share. It was the first time eBay has reported a loss since the second quarter of 1999.

Even so, eBay beat the street's expectations with record revenue of $1.9 billion, up 30% from last year. The company credited the surge to its PayPal electronic payment division, international sales and record sales at its ticket broking operation, StubHub.com.

Not counting the Skype charges, stock-based compensation expenses and other costs, eBay earned $563.8 million, or 41 cents per share, up 53% from $367,410 or 26 cents per share, in the third quarter of 2006.

eBay shares jumped 5.2%, or $2.00, to close at $40.60 on Wednesday before it released its earnings report. In after-hours trading it added another 0.37%, or 15 cents, to $40.75.

On Oct. 1, eBay announced it would take a $900 million write-down in the value of Skype for impairment, meaning that eBay executives are admitting they significantly overpaid for Skype when they shelled out $2.6 billion for it in 2005. On the same day, eBay announced that Skype’s founder and chief Niklas Zennstrom is leaving. eBay chief strategy officer Michael van Swaaij is serving as acting Skype CEO. eBay announced it also paid certain shareholders $530 million as an "earn-out" to settle future obligations.

It didn’t help that during a four-day period in mid-August, an outage left many users unable to log on to Skype to make phone calls. This may end up costing Skype by driving customers – some of whom are small businesses and are paying for the service – to a more dependable service. While more than 200 million registered accounts have been created with Skype, the company now has to consider defections.

eBay expects to be back on track in the fourth quarter with revenue between $2.1 billion and $2.15 billion. After one-time charges it expects earnings of 39 cents to 41 cents a share.