EBay Pushes Deeper Into Payments as Auctions FlagLooking for new growth engines as it struggles to revive its flagship auction site, eBay Inc. agreed to acquire Bill Me Later Inc. for about $945 million and revealed plans to cut 10% of its work force.
The San Jose, Calif., company, which plans to cut roughly 1,000 employees and 600 temporary workers, also warned Monday that third-quarter revenue would come in at the low end of its forecast.
Shares of eBay ended down 5.5% at $17.89 on the Nasdaq Stock Market, the lowest close in more than five years.
The moves come as eBay increasingly pins its turnaround efforts on its fast-growing PayPal unit, which handles payments for Internet transactions. It was acquired in 2002 and now accounts for more than a quarter of eBay's revenue.
Bill Me Later, based in Timonium, Md., is a service that allows Web shoppers to extend payment in exchange for a small fee, rather than paying immediately with a credit card. Unlike PayPal, which is popular among mom-and-pop sellers, it is often used by large retailers such as Toys R Us Inc. and Borders Group Inc. Bill Me Later, whose investors include Amazon.com Inc., serves 75 of the top 200 online retailers, said PayPal chief Scott Thompson.
But making online payments central to the company's turnaround has caused tension with some of eBay's sellers.
While many sellers were used to having choice in how they conducted their online sales, several now said they feel forced to use PayPal to generate revenue for eBay. The purchase of Bill Me Later may reinforce that perception.
EBay Chief Executive John Donahoe said in an interview the acquisition and layoffs are an effort by the company to be opportunistic and streamline its operations.
"This is the time that strong companies can get stronger," he said, adding that the layoffs will affect the auctions business more than PayPal and other units.
EBay has said the use of PayPal and online payments is intended to modernize the auction site.
Mr. Donahoe has instituted various changes to the auction site this year to attract repeat buyers and rejuvenate trading, such as requiring sellers to improve customer service in exchange for certain perks, but results have been mixed.
The economic slowdown has also hurt consumer spending, on which eBay depends for its auctions site to succeed.
At the same time, PayPal's revenue growth has outpaced that of eBay's traditional business, growing 33% in the second quarter compared with 13% at eBay's marketplaces unit, which includes auction and fixed-priced sales.
Overall, eBay posted growth of 20% in the second quarter.
Sellers' friction over PayPal stems in part from a change that eBay is making later this month. That's when eBay will start requiring all transactions on its auction site to be completed online.
The change means customers and sellers who had once used checks and money orders to close a sale will now only be able to use credit cards or services such as PayPal.
EBay said the shift helps the company catch up with other e-commerce destinations such as Amazon.com and Gap.com, where transactions are conducted only via credit cards and online payments.
But merchants such as Michele Godino, who sells antiques on eBay, said she feels as if she and other merchants are increasingly being forced to use PayPal to produce more revenue for eBay. "As a business owner and an adult, I feel like I should determine what payments I accept," she said.
In Australia, some eBay sellers are so steamed about the move to online-only transactions that they protested by writing letters and talking to the Australia Competition and Consumer Commission, a supervisory body. In July, eBay dropped its plan to go to online-only sales in Australia.
Mr. Donahoe defends the increased presence of PayPal on eBay, saying using the electronic-payments service makes transactions safer for both buyers and sellers.
EBay, which reports third-quarter earnings on Oct. 15, said Monday it would post revenue at the low end of its $2.1 billion to $2.15 billion forecast. But the company still expects to exceed its third-quarter earnings forecast.
The company expects to incur restructuring charges for the layoffs of about $70 million to $80 million, mostly in the fourth quarter, but save $150 million annually thereafter.
Along with Bill Me Later, eBay also said Monday it would buy Danish classifieds sites Den Bla Avis and BilBasen for $390 million.
By: Mylenne Mangalindan
Wall Street Journal; October 7, 2008
