eBay Is Back

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Market-thumping results. Rosy outlook. Accelerating revenue growth in its flagship marketplace business. Welcome back, eBay (Nasdaq: EBAY)!

The leading online auctioneer had all of its verbs in motion in its final quarter of 2006, earning $0.31 in adjusted profits per share that exclude stock-based compensation. On that basis, Wall Street was looking for earnings of $0.28 a share. You have to go back nearly three years to find the last time that eBay topped analyst profit targets by more than a token penny or two. Revenues surged 29% higher to hit $1.7 billion.

It was a quality showing throughout the company's subsidiaries. Marketplace revenue inched 24% higher, a sequential improvement over the 22% uptick it posted in the September quarter. PayPal revenue surged 37% higher. Skype soared 164% higher, but take that spike with a grain of salt, since Skype still accounts for less than 4% of eBay's revenue mix.

You want to hear me quibble? Okay, I'm not happy to see the ongoing trend where marketplace revenue outpaces the 20% gain in gross merchandise volume. In other words, eBay keeps nibbling at more of the transactions, and that makes it, in theory, a less attractive value to sellers.

This doesn't necessarily make eBay vulnerable. Who else is going to compete against eBay? Craigslist and Google (Nasdaq: GOOG) Base are free yet awkward and insecure. Other consumer-oriented auction site operators like Amazon.com (Nasdaq: AMZN), Yahoo! (Nasdaq: YHOO), and Overstock (Nasdaq: OSTK) are light-years behind in terms of listings and traffic. eBay doesn't have eternal pricing elasticity, but it's pretty close to being the only game in town in consumer-to-consumer auctions.

The future looks bright for eBay. It initiated 2007 guidance, looking for adjusted earnings to clock in between $1.25 and $1.29 a share. Analysts were only predicting $1.23 in forward profitability. Top-line growth will slow, with eBay looking for net revenue to move 18% to 22% higher, but Wall Street was already expecting that.

Investors took a shine to the report and last night's subsequent conference call, sending the shares 13% higher in after-hours trading. Keep those verbs in motion, eBay. You've come too far and meandered for too long to drop the baton now.

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Longtime Fool contributor Rick Munarriz is a satisfied eBay user with 171 positive feedback ratings to show for it. He does not own shares in any of the companies mentioned in this story, and he is a member of the Rule Breakers analytical team, seeking out the next great growth stock early in its defiance. The Fool's disclosure policy urges you to think hard about whether you really need the Blue Oyster Cult box set before you make that bid.