Web of woe as eBay is hit by online decline

Turnover at eBay's famous auction websites crashed 16% in the last quarter as recession-hit shoppers keep their wallets tightly shut.

The massive decline in the online marketplace's numbers sent the company, which owns the Skype phone business and PayPal internet payment group, into an overall sales decline for the first time in its history.

Its marketplaces division, including the main eBay site, saw sales drop to $1.27 billion (£917 million). Overall group sales fell 6.4%, to $2.04 billion.

"This was eBay's first year-over-year quarterly decline, and we're not happy about that," said chief executive John Donahoe, who took over a year ago after Meg Whitman left to pursue a career in politics.

Analysts had thought eBay, along with discounters like Aldi and Poundstretcher, would be well placed to survive the economic crisis, with its focus on bargain new and second-hand goods.

But Donahoe today admitted: "There's no doubt eBay was impacted by the macroeconomy, and our fourth-quarter results reflect this."

Consumer spending at home in the US has fallen rapidly while eBay has also been hurt by the strength in the dollar cutting deeply into the value of overseas sales, which make up more than half of its operations.

The volume of goods sold fell 12%, which was its second consecutive quarter of decline.

Under Donahoe, eBay has been moving away from reliance just on its auction business, and for the first time most of PayPal's volume came from sites not affiliated with eBay. Revenue at PayPal rose 11% on increased volumes and Skype revenue rose 26%.

The results mark a gloomy end to Donahoe's first year as chief executive, but he says he is still pleased by the fundamental "structural" changes he made during last year.

These include improved security of the eBay website and a reduction in the fees it charges fixed-price sellers.

"Today, eBay is safer and easier to use than it was a year ago," he said.

The company sacked 10% of its work force of 16,000 during the fourth quarter and paid $1.35 billion to acquire the online-payment firm Bill Me Later and two Danish advertising companies.