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Is It OK to Love eBay Again?

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It's easy to hate on eBay (Nasdaq: EBAY  ) . There's never a shortage of disgruntled sellers who've moved on after having enough of eBay's creeping fee increases and ever-changing seller policies.

However, what if the numbers paint an entirely different picture of the company?

eBay's latest quarter is encouraging. Revenue climbed 25% to $2.76 billion. Adjusted earnings climbed 19% to $631 million, or $0.48 on a per share basis. Investors cringe when they see a company's top line growing faster than even its tweaked bottom line, but this is still a beat for eBay on both ends of the income statement. Wall Street was expecting a non-GAAP profit of $0.46 a share on $2.61 billion in revenue.

PayPal has been carrying the load in recent years. There are now more than 100 million active registered accounts. Net total payment volume increased 34%, greater than the 15% spike in users. In other words, the average PayPal account is being used more often.

What about eBay's namesake marketplace business? It's doing a lot better than you might expect. Revenue and total payment volume posted year-over-year growth in the teens, and that goes for both domestic and international revenue. If no one is using eBay -- as some who have bailed may have you believe -- why is eBay not only gaining ground but also accelerating its growth? This isn't the kind of marketplace octane that investors will find in Latin America speedster MercadoLibre (Nasdaq: MELI  ) , but eBay can also be had at a much more reasonable earnings multiple.

This doesn't mean PayPal is ready to pass the baton. In fact, PayPal is about to take things to the next level.

During last night's call, eBay indicated that it will begin testing point-of-sale integration with a major U.S. retailer later this year. If successful, PayPal plans to add as many as 20 national chains by the end of next year.

Visa (NYSE: V  ) , MasterCard (NYSE: MA  ) , and American Express (NYSE: AXP  ) may not lose any sleep over this move. They, too, have spent the past few years fortifying their online and mobile payment positions. However, it will get interesting when folks with funds in their PayPal accounts have real-world options. Isn't this found money? It's true that eBay took a step back there when it nixed the PayPal Money Market Fund last month, but things will get interesting if it becomes a bricks-and-mortar staple. If eBay is going to cut merchants a break on fees to the point where they may encourage PayPal over other forms of payment, don't undersell the platform's shot. Remember that we're talking about 100.3 million active registered PayPal accounts.

eBay is happening again. Time to let go of those fading memories of a 2003 auction for a Beanie Babies plush gone wrong.

Is eBay a winner or a loser? Share your thoughts in the comments box below.

Motley Fool newsletter services have recommended buying shares of MercadoLibre, eBay, and Visa. Motley Fool newsletter services have recommended shorting MercadoLibre. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Longtime Fool contributor Rick Munarriz is a satisfied eBay user, with 178 positive feedbacks to show for it. He owns no shares in any of the companies in this story and 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.

Read/Post Comments (6) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 22, 2011, at 12:11 AM, RicRoe wrote:

    Stock analysts and investors should not be misled into believing that sales are growing at eBay's marketplace.

    The rate of growth reported in this quarterly report is not indicative of a sudden increase in buying activity in eBay's marketplace.

    The growth eBay reported is largely due to the fact that eBay has manipulated increasing numbers of sellers into offering "free shipping" by adding a new Final Value Fee on shipping costs when not included in the selling price.

    This maneuver has sellers adding the cost of shipping into the selling price of the item and allows eBay to deceive analysts and investors with inaccurate claims that sales are growing.

    The fact is that sales are not growing at the rate eBay claims when one considers that shipping costs are now widely counted as "sales".

    Notice that neither John Donahoe nor Bob Swan during their presentation even mentioned that relevant fact.

  • Report this Comment On July 22, 2011, at 11:24 AM, CheckTheFacts wrote:

    The above poster is right. It is all smoke and mirrors. Check the sell thru rates of small, medium and large sellers on eBay and you will ask yourself "Where are the buyers?"

    Also, go to the discussion boards on eBay and read postings by seller after seller lamenting about poor or non-existent sales. This will give you a true picture.

    Analysts and the media need to stop believing everything that eBay feeds them and start doing some original research on what is really going on. A lot of people are being deceived.

  • Report this Comment On July 22, 2011, at 7:07 PM, PhilipCohen wrote:

    Zing goes the Zong …

    Why is eBay paying $240 million to buy Zong? So that we can all have our purchases itemized on our phone bill? (Telcos are now in the banking business or are they all now just (un?)licensed providers of credit?) Have you ever tried to make sense of a modern phone bill? Give me a break; I’ll keep my purchases itemized on my bankcard or banking account statements, thanks.

    “Zong charges merchants more than PayPal for a comparable transaction. PayPal transactions carry a fixed fee of 30 cents in addition to 2 to 3 percent of the purchase. Merchants who use Zong receive between 70 and 92 percent of the purchase amount, said Brooke Hammerling, a Zong spokeswoman.”

    What? Zong (and the telco) takes a commission of between 8 and 30 percent? Would you mind passing that past me again please, surely, I must have mis-heard it the first time …

    eBay: Magento, AliExpress, Skype, Fish, FigCard, GSI Commerce, RedLaser, Where, Milo, Fetch, Zong, Shipwire, PayPal, Visa, MasterCard, Google, Schmoogle, whatever …

    eBay’s chief headless turkey likes buying toys, none of which have done anything, relatively speaking, to materially improve the eBay Marketplace’s bottom line, not even in this the fourth year of this turkey’s three-year turnaround plan to change eBay from what made it so successful into, who knows what? See:

    The fact is the rusting old hulk eBay is presently being kept afloat by the clunky PreyPal so it’s good to see these financial services boys recently squabbling and threats to PreyPal now coming thick and fast. It’s interesting times for all we eBay “haters” (oops, I mean “watchers”). I just hope that someone has remembered to bring the popcorn.

    Even though PayPal clearly offers banking-type services (ie, holding depositors’ money in non prudentially regulated banking-style accounts), PayPal is mostly registered in various places not as a “bank” nor as a provider of credit but only as a “money transmitter” (like Western Union), and indeed PayPal claims that they are not even a “payment network”, and there is a minute degree of truth in that claim because it could, somewhat nonsensically, be claimed that most (but not all) of their activities do no more than facilitate the transmission of money by riding on the back of the banks’ existing payments processing systems.

    In fact, the only thing creative about PayPal has been their founding use of users’ email addresses as an identifier for online payment transactions. PayPal is otherwise no more than a blood-sucking parasite on the back of, and in the main cannot function except via, the banks’ existing payments processing systems.

    PayPal, outside of whatever will ultimately be left of the Donahoe-devastated eBay Marketplace, will undoubtedly eventually be consigned to the history books by the retail banks/Visa/Mastercard once those players get their “online” act together.

    Some people may not like “the banks” but all those participating retail banks at least supply a professional payments processing system and even PayPal concurs with that assessment: except for any intra PayPal “deposit account” transactions, they use the banks’ payments processing systems all the time and simply could not exist without them.

    Regardless, all the above comments apply equally to all of the other third-party online “payments processors” that are emerging out of the woodwork and wanting to have access to your banking account. Unless they have formal and direct arrangements with all the participating retail banks, as do the likes of Visa/MasterCard, then the result is invariably going to be as potentially problematic as is PayPal’s clunky operation for its PayPal merchants—a great many of whom can tell you a sorry tale or two.

    All anyone needs to know about the clunky PayPal, at:

    What all buyers should know about the criminal activities of eBay, at:

    Is that PayPal’s blood in the water, and are those “sharks”—oops, “banks”—I can see circling?

    Enron / eBay / PayPal / Donahoe: Dead Men Walking.

  • Report this Comment On July 22, 2011, at 7:08 PM, PhilipCohen wrote:

    “PayPal bringing NFC to Australia in months”

    “Commonwealth Bank of Australia to offer NFC payments within months”

    Let's see how well the clunky PreyPal POS effort competes in Australia with one of the big Australian retail banks ...

    All anyone needs to know about the clunky PayPal, at:

    What all buyers should know about the criminal activities of eBay, at:

    Enron / eBay / PayPal / Donahoe: Dead Men Walking.

  • Report this Comment On July 23, 2011, at 5:35 PM, UPWARDANDHONEST wrote:

    I'm really knew to the money number digesting game. But, when I saw this article, I had to spew my opinion from a seller's stand-point on ebay. I started my company in the middle of 2008 and have used ebay to propel my sales last year to roughly $350,000. Throughout this whole period, we have been adjusting to a barrage of new seller rules and not in the seller's favor either. The seller on ebay is viewed to be guilty of unethical behavior before a sale is made and ebay has made it all-to-clear to buyers that feedback is king and if the seller doesn't bend over backwards to kiss thier a--, they can make his life miserable with a virtually unretractable, over-valued negative or simply a dispute that holds funds up for two months and is still posted in a negative light. The latest algorithm change that places highest importance on "Ending soonest" has simply switched sellers to an auction style format (1, 3, 5, 7, 10 day listings) and forces the seller to pay an enormous amount of money to be on the first page of a search at some point in time if they're lucky enough to not be in a high volume category. I have seen my niche market decimated of quality professional equipment made by reputable companies and replaced by high margin, no-name chinese junk manufacturers that can take the profit drop to run auction-style listings. I am a dealer for two companies that are considering a ban on selling their products on ebay (they are high-end audio manufacturers). Because, ebay has become a market for bottom feeders that care only about getting what they want for the lowest dollar possible and is a known marketplace for sellers that get their hands on their product, somehow and severely undercut minimum advertised dealer pricing that legitimate dealers are required to adhere to, to retain their dealership. At the end of the day, just because ebay's quarterly is up doesn't mean they aren't shooting themselves in the foot for short-term gains. The reputable sellers are leaving and the quality merchandise is losing the fight to the generics. At some point in time, ebay will be simply be known for hustling junk by shady characters.

  • Report this Comment On July 23, 2011, at 5:41 PM, UPWARDANDHONEST wrote:

    P.S. I forgot to mention that my company has increased our inventory presence in our market on ebay by 30% and have seen sales drop by 28%. The writing on the wall is clear and it's a good time to scrap this model, move to the beach and follow another dream.

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