eBay, Heal Thyself

Baby steps, eBay (Nasdaq: EBAY  ) . Baby steps.

The online marketplace's latest financial report isn't a whole lot different than the ones that you've been hearing for several quarters now. Marketplace revenue (from eBay.com, for example) is still shrinking. And PayPal and Skype are still posting double-digit percentage gains in revenue.

However, the competence gap is closing. eBay's marketplace revenue actually fell by a mere 1%, and would have inched slightly higher if currency translations weren't a factor, given its healthy gains overseas. Meanwhile growth decelerated at PayPal (up 15%) and Skype (up 29%). All told, quarterly revenue came to $2.2 billion, a gain of 6%, whereas net income plummeted 29%, to $350 million.

This doesn't mean that PayPal or Skype are slacking off. PayPal is still a world-beater, with its virtual platform accounting for $17.7 billion in net transactions during the three past months. There are now 78 million active PayPal accounts -- a 19% increase year over year. It doesn't have the near-ubiquity that Visa (NYSE: V  ) or MasterCard (NYSE: MA  ) has, but good luck finding an online payment platform that is as widely accepted. Even Google's (Nasdaq: GOOG  ) entry into this niche has been a non-factor.

Skype is also smiling nicely. There are now 520.8 million accounts, though eBay is set to sell a 65% stake in the voice chat platform by year's end.

The most encouraging part of eBay's report, for a change, is its marketplace business. It may be the least-liked of the company's segments, but it's starting to stabilize. The 1% year-over-year decline in revenue may sound bleak, but compare that to dips of 14%, 18%, and 16% in each of the three previous quarters, respectively. This also marks the first quarter of sequential growth in marketplace revenue in more than a year, even if one can argue that acquiring a few international online classified sites helped pad results.

eBay still has a long way to go. Amazon.com (Nasdaq: AMZN  ) reports tonight, and analysts see healthy top-line growth there. In other words, eBay still needs to come up with excuses as to why it's not growing as fast as the real e-tail leader. The company is emphasizing fixed-priced listings, so it certainly deserves to be stacked up against Web-based retailers.

The market was disappointed with eBay's guidance for the current quarter. Analysts were perched on the higher end of its forecast of $2.2 billion to $2.3 billion in revenue and $0.38 a share to $0.40 a share in non-GAAP earnings. However, the range midpoints indicate sequential improvement. Before you argue that a sales gain is what's supposed to happen during the holidays, keep in mind that eBay suffered a sequential decline on the top line last holiday season.

It's getting there, even if the "there" is still so far away.

With eBay's marketplace business stabilizing, are buyers and sellers coming back? Share your thoughts in the comment box below.

eBay and Amazon.com are Motley Fool Stock Advisor selections. Google is a Rule Breakers recommendation. Save your bidding card and try any of our Foolish newsletter services, free for 30 days.

Longtime Fool contributor Rick Munarriz is a satisfied eBay user with 177 positive feedbacks to show for it. He does not own shares in any of the companies in this story. He is also a member of the Rule Breakers analytical team, seeking out the next great growth stock early in its defiance. The Fool has a disclosure policy.


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  • Report this Comment On October 24, 2009, at 8:50 AM, NYMArts wrote:

    FORESOOTH !

    Thou MUST REMOVE the one known as Donahoe, as he is but a lip licking Jester in a CEO's garb.

    It is but a Quarter away when this Folly of a "Man" reveals the Degree to which he is Rightfully entitled, Yes, the Degree of.......IGNORANCE. Lest ye be lulled into the trance and STRIPPED of all wealth.

    You Have Been Warned !

    And now for something Completely different :

    Don Yacktman is the Next True Pilot of Ebay Auctions.

    He will bring it BACK from the Brink.

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