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EBay cutting 1,600 jobs, 10% of work force

(Agencies)
Updated: 2008-10-07 09:41

NEW YORK - After a series of changes designed to draw more people to its online marketplace, eBay Inc.'s latest alteration is aimed at its own employees. The auction site operator said Monday it will cut about 1,600 jobs, 10 percent of its work force, in its largest round of dismissals ever.

About 1,000 full-time employees will be gone, while eBay will achieve the rest of the cuts by letting temporary and part-time workers go and by leaving open positions unfilled. EBay would not describe which positions would be cut, other than to say they will come across the company and around the world.

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EBay Chief Executive John Donahoe said in an interview that the cuts were not a reaction to the weak economy. Investors were still disheartened, sending eBay shares to a 5 1/2-year low.

Donahoe, who took over as CEO from Meg Whitman in March, said eBay's leadership had been thinking about making the cuts since midsummer. The moves will make eBay "more responsive and nimble," he said, and will give it an opportunity to reinvest in growth areas like its online payments service PayPal and its classified-ads business — both of which eBay augmented with acquisitions announced Monday.

"This is trying to position our company in the right way for the medium to longer term. I would say it is not a reaction to the short-term macro environment, or short-term pressures," Donahoe said.

EBay anticipates $70 million to $80 million in restructuring charges related to the job cuts, mostly in the fourth quarter. The company said the cuts will result in $150 million in annual cost savings.

This round of cuts is eBay's second this year. The company said in March that it would cut 125 positions in Europe and North America, including 70 jobs at its San Jose, Calif. headquarters.

Pacific Crest Securities analyst Steve Weinstein praised eBay for "taking proactive steps" that reflect "the challenging environment they're in." But he also lamented that the cuts indicate how much trouble eBay is having at igniting growth in its core business.

EBay has struggled to match competition from other areas of e-commerce, with many consumers increasingly using more online retailers like Amazon.com Inc. that follow a more traditional selling model. In the second quarter, eBay's count of "active users" rose just 1.4 percent.

Already this year, eBay has altered the fees that vendors pay, its search results and its feedback system in an effort to improve the experience for buyers and keep them coming back. But the changes have also angered a number of sellers, some of whom have left the site.

Donahoe did acknowledge that the weak economy and the effects of the strengthening dollar are hurting eBay's business. Third-quarter revenue will be at the low end of the company's expectations. Nonetheless, eBay said its third-quarter earnings would be higher than it had predicted in July.

EBay's shares fell $1.05, 5.5 percent, to $17.89. The shares have lost about half their value this year.

EBay also said Monday that it will purchase Bill Me Later, a privately held company that lets online retailers give shoppers credit without detailed application forms, for about $820 million in cash and $125 million in outstanding options. The Timonium, Md.-based company is expected to become part of PayPal by the end of the year. Shoppers should be able to use the Bill Me Later service on eBay's sites in the second half of 2009, PayPal President Scott Thompson said in an interview.

EBay might see the purchase as a way to get consumers to buy more-expensive items through the site. Thompson noted that people using Bill Me Later tend to spend more on online retail sites.

"I think they're taking advantage of a good opportunity at this time," said Weinstein, the analyst. "It should help them do well in the payment business in the future."

EBay also said Monday that it purchased Danish classified-ad site dba.dk and vehicles site bilbasen.dk for about $390 million in cash. The sites add to eBay's stable of classifieds sites, which include Kijiji and Gumtree.

Donahoe said eBay went after Bill Me Later and the Danish sites now because it is "a good time for smart investors that focus on the long term to move."

"In times like this," he said, "strong companies have a potential to get stronger."