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EBay Expects Softer Holidays; Q4 Sales, Earnings Outlook Lag

EBay (EBAY) late Wednesday posted Q3 revenue and gave Q4 guidance that missed analyst expectations, and the stock was down 5% in after-hours trading.

Revenue growth for the e-commerce giant's PayPal payments unit fell to 19% year-to-year from 20% in Q2.

But eBay's Q3 earnings per share minus items rose 17% to 64 cents, beating analyst views by a penny.

"We remain positive on the stock," Cantor Fitzgerald analyst Youssef Squali wrote in a note after the earnings release.

Squali said guidance likely missed because of continued softness in Europe, which eBay CEO John Donahoe had mentioned as an issue in his Q2 report three months ago.

But eBay CFO Bob Swan, on a conference call with analysts, said Europe was holding steady. Instead, he said the company expects a softer U.S. holiday shopping season.

On Wednesday's call, Donahoe talked up the company's mobile prospects. "We continue to feel very good about our strength and opportunities," Donahoe said.

He said mobile drove "a significant portion" of new user growth in the quarter, with mobile-enabled commerce rising 75% in the quarter and the company's mobile apps attracting 3.2 million new customers.

San Jose, Calif.-based eBay said Q3 revenue rose 14% to $3.89 billion. Analysts polled by Thomson Reuters had expected $3.91 billion.

For Q4, eBay projects EPS ex items of 79 to 81 cents, below analyst views of 83 cents. It sees sales of $4.5 billion to $4.6 billion, falling short of analyst views of $4.64 billion.

EBay's quarterly EPS and sales outlooks have lagged in each of the previous three quarters by a similar margin as its Q4 outlook.

And its results, too, have been similar. Q3 marked the third consecutive quarter of 14% year-over-year revenue growth, and its EPS ex items has been 63 or 64 cents each of those quarters.

Analysts are getting antsy for more growth, however.

"EBay has different parts of its business doing different things. But overall, there's a slowdown in momentum, especially with PayPal," ITG analyst Steven Weinstein told IBD in a pre-earnings interview.

On Wednesday's call, CFO Swan said eBay is maintaining its full-year guidance.

PayPal's Q3 revenue came in at $1.62 billion. Its 19% year-over-year growth beat its 18% growth in Q1 but lagged 24% growth in Q4 2012. Some analysts say eBay's fast-growing payments business is maturing.

ITG's Weinstein says a key issue facing eBay is how it can re-accelerate growth in its PayPal business as it moves deeper into mobile and emerging markets and builds a global payments platform for businesses and consumers.

"These are big ideas and opportunities that will take time to develop," Weinstein said.

Braintree Deal A Good Step

Weinstein says eBay's announcement in late September that it would buy mobile payment app developer Braintree for $800 million is a step in the right direction. But he says that acquisition won't have an immediate impact on PayPal's top or bottom lines.

He also says the numerous partnerships that PayPal has signed with large retailers and others "(don't) seem to be changing the trajectory of the business.

Others agree.

EBay's year-plus effort to offer store checkout payments at Home Depot (HD) and other big U.S. retail chains hasn't yet shown signs of taking off, RBC Capital Markets analyst Mark Mahaney said in a research report earlier this month.

EBay's Q3 international revenue rose 15% to $2.02 billion. U.S. revenue rose 14% to $1.87 billion.

Revenue for eBay's Marketplaces unit, including auctions, rose 12% to $2.03 billion.

Gross merchandise volume, or GMV, the value of all goods and services sold on eBay, excluding vehicles, rose 13% to $18.36 billion.