Ebay will cut 1,000 full-time jobs, acquire payment firm

NEW YORK - EBay Inc., whose shares are trading at an almost six-year low, will cut 10 percent of its workforce and agreed to buy two payment and classified advertising companies for $1.34 billion as sales growth slows at its Internet marketplace unit.

EBay will purchase online-credit service Bill Me Later for $945 million and merge it with its PayPal payment division. The company also agreed yesterday to buy Denmark's Den Blaa Avis for its newspaper and the country's two biggest classified websites for $390 million in cash.

One thousand full-time employees and about 600 temporary and part-time workers will be laid off as San Jose, Calif.-based eBay seeks to reaccelerate sales that rose at the slowest pace since 1998 and met the "low end" of its third-quarter forecast. Chief executive John Donahoe's purchase of Bill Me Later indicates an increasing reliance on payment services to boost revenue as it competes with Amazon .com.

"EBay is largely a virtual business and it doesn't have a lot of customer-service operations, it probably had too many people," Jeffrey Lindsay, an analyst at Sanford C. Bernstein & Co. in New York, said. Buying Bill Me Later "was a very astute move. It gives eBay access to parts of the transaction and fees that they don't normally get."

EBay said the purchase of Bill Me Later, which extends credit, giving users the option for deferred payments, will reduce adjusted profit by 3 to 5 cents a share in the fourth quarter and another 6 cents in 2009. It will start adding to earnings in 2011, the company said. PayPal is the biggest online payment system, and Bill Me Later is second.

"PayPal and Bill Me Later belong together," Donahoe said. "We're going to continue to invest in PayPal to extend that leadership position because we think it has enormous potential."

Bill Me Later allows PayPal to make more money on transactions by avoiding fee payments to credit card companies and charging interest on credit transactions.

"They're taking credit risk for the first time," Lindsay said. "They can manage their process better than a credit card company can because they're actually managing the transactions, not a line of credit. They only have to get bitten once."

Amazon.com owns about 10 percent of Bill Me Later, Lindsay said, and will probably "sever their relationship" following eBay's takeover. Amazon .com invested in the company in December when it said it would use the technology.

Analysts estimate Amazon.com will post a 32 percent sales increase in the third quarter to $4.3 billion. EBay said yesterday that sales may have risen as much as 12 percent to $2.12 billion, "the low end" of its July 17 forecast of $2.1 billion to $2.15 billion.

The job cuts, which will be completed by year-end, will cost eBay $70 million to $80 million pretax, most of which will be recorded in the fourth quarter, and lead to annual savings of about $150 million.