EBay Inc said it will cut 10 percent of its work force and spend about $1.3 billion to buy online payment and classified companies to counter a slowdown in its main web auctions business.
Shares of eBay fell by as much as 12 percent on Monday, their lowest level in more than five years, after the company also said third-quarter revenue would hit the low end of its forecast. Shares clawed their way back to close at $17.89, down $1.05 or 5.5 percent, on the Nasdaq.
Investors are concerned the U.S. 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 San Jose, California-based 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 $70 million to $80 million, mostly in the fourth quarter, but save $150 million 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 plow the proceeds into higher-growth areas like PayPal and classifieds.
"This is not in any way tied to the short term. This is tied to simplifying the organization…to compete over 12 to 18 months," Donahoe said. "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 Inc, 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 U.S. auctions business will have declined from a year ago when they report on October 15.
"If you can't fix your top line, you have to address the cost structure," Weinstein said. 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 $2.1 billion to $2.15 billion. 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 holiday shopping season.
"We anticipate a fairly competitive holiday season where consumers will be looking to save that extra buck," Donahoe said. "Similarly, there are people who will be looking to make a little more money, to sell something."
