Credit crisis sees eBay slash 1,000 jobs

eBay said it will cut 10 per cent of its work force and spend about $1.3bn to buy online payment and classified companies to counter a slowdown in its main web auctions business.

Investors are concerned the US housing slump, higher fuel prices and a growing financial crisis are taking a greater toll on eBay's auctions.

Some also questioned one of eBay's purchases, Bill Me Later, which offers consumers deferred payments and financing promotions, as the credit crisis grips global markets.

The most significant layoffs in the company's history will affect about 1,000 employees and 600 temporary workers, across a variety of jobs and locations at eBay and PayPal, its online payments service.

The reduction is expected to incur restructuring charges of about $70m to $80m, mostly in the fourth quarter, but save $150m annually thereafter.

Chief executive John Donahoe told Reuters the company would reinvest resources into its auctions business, whether through lower prices, coupons or improving user experience. It would also plough the proceeds into higher-growth areas like PayPal and classifieds.

Donahoe said: "This is not in any way tied to the short term. This is tied to simplifying the organisation...to compete over 12 to 18 months. This is a time when eBay is putting its foot on the gas in terms of investing for future growth."

Auctions growth has slowed in the last few years, with a wealth of online deals at other sites and greater competition from the likes of online retailer Amazon.com, which has cut into eBay's market share.

In the past year, the company lowered its up-front listing fees to lure more sellers and offered more fixed-price listings, which appeal to buyers. eBay also increased fraud protections and incentives such as coupons.

Pacific Crest analyst Steve Weinstein called the job cuts "responsible". He predicted that sales in eBay's US auctions business will have declined from a year ago when they report on 15 October.

Weinstein said: "If you can't fix your top line, you have to address the cost structure." The cost-cutting, he said, was "a positive happening amid some broader negatives. Yes, this is a good thing, but a declining core business is worse".

For the third quarter, eBay expected to hit the low end of its revenue forecast of $2.1bn to $2.15bn. But it said it would exceed the high end of its earnings forecast range of 39 cents to 41 cents per share, before items.

Donahoe said the job cuts and acquisitions should make eBay more nimble and draw buyers to its site for the Christmas shopping season.

Donahoe said: "We anticipate a fairly competitive holiday season where consumers will be looking to save that extra buck. Similarly, there are people who will be looking to make a little more money, to sell something."

eBay said it would buy the US-based Bill Me Later payments service for about $820m in cash and $125m in options.

The number two online payments player will be combined with PayPal and is expected to generate $150m in revenue in 2009. eBay sees the deal closing in the fourth quarter and adding to earnings in 2011, while reducing operating profits per share by three cents in the current fiscal year's fourth quarter and by six cents in 2009.

eBay executives noted the deal price would have been double that sum a year earlier and that Bill Me Later's features can appeal to consumers in any economy.

PayPal president Scott Thompson, who will oversee the unit, said: "You can have a wonderful credit business that continues to operate in a down market."

When asked about the risks of any exposure to credit issues, Thompson said Bill Me Later was very selective in offering one-time deferred payment options to consumers.

eBay is also buying Danish online classifieds businesses Den Bla Avis and BilBasen for about $390m, adding to a global portfolio of classified ad sites.

Sanford C Bernstein analyst Jeffrey Lindsay said investors were concerned about the deals eating into eBay profits but that the acquisitions should help the company strategically.

He said: "In the current environment, people will find it more difficult to get credit to buy things online. Provided they manage the risk carefully, Bill Me Later gives an excellent alternative. It might give a way that people will prefer to buy on eBay rather than go somewhere else."