EBay first-quarter profit rises 20 percent

SAN FRANCISCO (AP) -- EBay Inc. on Wednesday said that its first-quarter profit rose 20 percent on reinvigorated growth at its namesake e-commerce website and further swift growth at its PayPal payment service.

Revenue from the company's marketplace business, which is its largest and includes eBay.com, climbed 12 percent to $1.55 billion -- well ahead of the single-digit growth eBay reported in the second half of 2010.

The company has been working to improve the buying and selling experience on eBay.com by cutting upfront listing fees it charges sellers, improving its search engine and revamping its home page.

The company said gross merchandise volume, which measures the value of all goods sold on eBay, excluding vehicles, rose 8 percent to $14.5 billion. Though eBay's roots are in the online auction business, more than half of the transactions on the site these days are fixed-price sales.

In an interview, eBay CEO John Donahoe said the growth shows consumers like the changes the company has made.

For the company as a whole, net income in the January to March period was $475.9 million, or 36 cents per share. That compared with $397.7 million, or 30 cents per share, in the first quarter of 2010.

Excluding special items, eBay earned 47 cents per share -- a penny more than what analysts polled by FactSet expected.

Revenue rose 16 percent to $2.5 billion, essentially in line with analyst expectations.

Revenue from PayPal, eBay's online payment business, jumped 23 percent to $992.3 million. This business, which includes PayPal and short-term credit service Bill Me Later, has grown swiftly as merchants and consumers use it both on and off eBay. In the next few years, eBay expects the unit's revenue to surpass that of the marketplace unit.

PayPal's total payment volume rose 28 percent to $27.4 billion, and by the end of the quarter, the number of active users had risen 16 percent year over year to 97.7 million.

The mobile market for both PayPal and marketplaces is growing, too, as consumers are using eBay and PayPal mobile apps on smartphones and tablet computers. Donahoe reiterated a prediction he made in January, saying he expects $4 billion worth of goods to be sold through the eBay.com mobile apps in 2011, which would be double what eBay saw last year.

Consumers "like having, in essence, a store in their pocket," he said.

He expects PayPal's mobile apps, meanwhile, to process $2 billion worth of payments -- more than double the $750 million they handled in 2010.

San Jose-based eBay also predicted that its second-quarter revenue could beat Wall Street views: It's looking for $2.55 billion to $2.65 billion, while analysts have been expecting $2.52 billion.

EBay predicted a profit of 36 or 37 cents per share, or 45 or 46 cents excluding items. Analysts were hoping for 46 cents per share, excluding items.

EBay shares rose 7 cents to $34.10 in after-hours trading. The stock had finished regular trading up 95 cents, or 2.9 percent, at $34.03.

Bernanke sees risks in further steps to spur jobs

WASHINGTON (AP) -- Federal Reserve Chairman Ben Bernanke said Wednesday that the Fed can't take additional steps to try to ease high unemployment without escalating inflation.

If inflation were to accelerate, the Fed would have to raise rates to slow borrowing and spending and blunt price increases. Hiring might then slow.

Speaking to reporters, Bernanke became the first chairman in the Fed's 98-year history to begin holding regular news conferences. The session, the first of three scheduled news conferences this year, is part of Bernanke's long-standing campaign to make the Fed more transparent and to cast himself as open and accessible.

In fielding questions, he sketched a picture of an economy growing steadily but still weighed down by a prolonged period of unemployment, now at 8.8 percent. He acknowledged the pain that is causing, noting that around 45 percent of the unemployed have been without a job for six months or longer.

"We know the consequences of that can be very distressing because people who are out of work for a long time, their skills tend to atrophy," Bernanke said.

But he added:

"It's not clear that we can get substantial improvements in payrolls without some additional inflation risks, and in my view we can't achieve a sustainable recovery without keeping inflation under control."

Bernanke appeared relaxed with reporters, projecting a calming presence and saying nothing that might rattle investors.

The Fed chairman offered some clues about when and how the Fed would begin raising interest rates.

For more than two years, the Fed has kept a pledge to hold its key rate at a record low near zero for an "extended period." At his news conference, Bernanke said that at this point, that phrase means "a couple of meetings." The Fed, which ended a two-day meeting Wednesday, gathers about every six weeks.

Once the Fed abandons the "extended period" language, it would be viewed as a signal that it was preparing to start boosting interest rates.

Stocks rose after Bernanke said he expected the economy to continue growing through next year and 2013. The Dow Jones industrial average, which had been up about 50 points when Bernanke began speaking, closed up about 95 points.

Gold prices rose, indicating that investors expect the continuation of low interest rates to keep the dollar relatively weak. Treasury bonds, which are most sensitive to changes in Fed interest-rate policy, barely moved.

"We paid attention," said David Ader, head of government bond strategy at CRT Capital. "But he didn't say anything we hadn't heard already."

Bernanke acknowledged that higher gasoline prices are creating a financial hardship for many Americans. But he said the Fed doesn't think gas prices will continue to rise at their recent pace.

The news conference offered Bernanke a chance to drive a debate about Fed policy. Critics have said the Fed's efforts to boost growth raise the risk of high inflation.

Bernanke said the first step in tightening interest-rate policy could occur when the Fed stops reinvesting the proceeds of its bond holdings. Bernanke would not be specific about when that might occur. He said it will depend on inflation and economic growth in coming months.

He said that step would be a relatively modest one. But it would constitute the Fed's first tightening because it would allow interest rates to creep up.

The Fed, an independent government agency, has long acted in secrecy. For decades, the central bank didn't bother to explain what it was doing or why. It chose instead to let investors pore over scraps of information like Kremlinologists trying to discern the inner-workings of the Soviet Politburo.

But the Fed has slowly opened up. In 1975, Fed chairmen began testifying before Congress twice a year. In 1994, the Fed's policymaking committee started issuing statements after its meetings, disclosing the target for its benchmark federal funds rate.

Eight years later, Fed statements began to include a roll-call tally of how committee members voted on interest rate policy. That allowed investors and the public to gauge the extent of dissent at Fed meetings.

Bernanke has taken openness to levels unthinkable under his predecessor, Alan Greenspan, who tended to make opaque comments that confused more than clarified.

Last month, the Fed announced that Bernanke would hold four news conferences a year, after the three this year.

AP Business Writers Paul Wiseman and Jeannine Aversa in Washington and Matthew Craft in New York contributed to this report.

Berkshire says former exec Sokol violated policies

OMAHA, Neb. (AP) -- Berkshire Hathaway said Wednesday that a former executive believed to have been in line to succeed Warren Buffett as CEO violated the company's insider trading and ethics policies by buying stock in a chemical company Berkshire is acquiring and failing to disclose key details.

Buffett released a report that Berkshire's audit committee produced after examining David Sokol's $10 million investment in Lubrizol. It's not clear whether Sokol will face any additional sanctions for his actions because the company says its policies set a higher standard than the law does.

Sokol resigned from Berkshire shortly after Buffett's Omaha company announced plans to acquire Lubrizol for $9 billion. When his resignation was announced late last month, Sokol said he was leaving to start his own firm.

The audit committee of Berkshire's board said Sokol offered "misleadingly incomplete disclosures" about his Lubrizol trades, which were made while he was scouting acquisition candidates for Berkshire.

The audit committee said even if Sokol's actions could somehow be justified, they would still violate the standard Buffett establishes when he periodically encourages all Berkshire managers to avoid any behavior that even comes close to being unethical. Buffet sends a letter to his managers every two years reminding them to "zealously guard Berkshire's reputation."

"By engaging in such questionable conduct, Mr. Sokol threatened Berkshire Hathaway's reputation -- or would have done so had he remained with the company," the audit committee said in the report.

Sokol did not immediately respond to a message left at a number listed for him in Omaha, and no one answered the phone at a number listed for him in Florida. He has generally declined to comment since making an initial appearance on CNBC right after his resignation was announced and stating he didn't believe he had done anything wrong.

Buffett did not immediately respond to a message left with one of his assistants Wednesday afternoon.

A spokesman for the Securities and Exchange Commission said Wednesday that he could not confirm or deny whether the agency was investigating Sokol's trades.

The new report on Sokol's actions was released ahead of Saturday's Berkshire Hathaway annual shareholders meeting. Buffett and Berkshire Vice Chairman Charlie Munger are almost certain to face questions about Sokol at the meeting. Berkshire said Wednesday that it would release a transcript of any questions about the topic on its website afterward.

Andy Kilpatrick, the stockbroker-author of "Of Permanent Value, the Story of Warren Buffett," said this new report should defuse the Sokol issue before the meeting, and it appears Berkshire wants to answer all the questions it can.

"I don't think Berkshire did anything wrong," said Kilpatrick, who is also a shareholder. "It's just that they were deceived."

Jeff Matthews, a shareholder who wrote "Secrets in Plain Sight: Business & Investing Secrets of Warren Buffett," said the new report is a good start at answering the lingering questions about Sokol's actions.

"It's devastating for Sokol, and it raises a lot of issues about how Berkshire handles its operation and the leeway it gives its people," Matthews said.

Berkshire is notoriously decentralized with just 21 employees in Omaha to oversee about 260,000 worldwide. Buffett tells shareholders that he and Munger "delegate almost to the point of abdication" and let the managers of Berkshire's subsidiaries run their businesses.

Sokol bought nearly 100,000 Lubrizol shares in early January for about $100 a share even though he knew Lubrizol's board had been discussing Berkshire's possible interest in acquiring the chemical company.

About a week after Sokol bought his Lubrizol shares for about $10 million, he recommended that Berkshire buy the company. Buffett said Sokol mentioned owning Lubrizol stock in passing, but he didn't learn the details of the transactions until shortly after the deal was announced March 14.

The committee report said it never occurred to Buffett that Sokol might have bought Lubrizol shares after meeting with Citi investment bankers about Berkshire's possible interest in Lubrizol.

The report said Buffett only learned about the role investment bankers played in the deal after it was announced, and when questioned by Berkshire's chief financial officer, Sokol initially omitted that he had met with Citigroup bankers in December.

Buffett has said the decision to offer $135 in cash for each share of Lubrizol was entirely his, but that the offer wouldn't have happened without Sokol's early efforts. The deal made Sokol's shares worth roughly $13 million.

The audit committee said Berkshire's insider-trading policy requires a higher standard of conduct than securities law, so Sokol might not face criminal charges but he forfeited any severance-related compensation when he resigned from the company.

Berkshire's audit committee said Wednesday that the board may consider legal action against Sokol to recover his trading profits and any damage that Berkshire sustained. The committee said it hopes its report on Sokol's action will deter anyone else from violating the company's policies.

Before Sokol's departure, he had been serving as chairman of Berkshire's MidAmerican Energy, NetJets and Johns Manville units.

Berkshire owns roughly 80 subsidiaries, including clothing, furniture and jewelry firms, but its insurance and utility businesses typically account for more than half of the company's net income. It also has major investments in such companies as Coca-Cola Co. and Wells Fargo & Co.

Online:

Berkshire Hathaway Inc.: www.berkshirehathaway.com

Berkshire report on Sokol's actions: http://bit.ly/iOdpq5

Warren Buffett's initial statement on Sokol: http://bit.ly/h05Udr

Lubrizol: www.lubrizol.com

History of Lubrizol deal: http://1.usa.gov/eUIPXD