Investors had every reason to expect good news from eBay's (NASDAQ:EBAY) second-quarter report. Management said that all of its growth and engagement metrics began spiking in the early days of the pandemic as global shopping behavior shifted to online channels, and peers such as Walmart had described surging demand around that change.

On Tuesday, eBay confirmed that its business saw an unprecedented volume spike in Q2 that also pushed profitability higher. Executives said they're confident that the trend will continue at least through the third quarter, while warning that it's hard to predict much beyond that.

With that big picture in mind, let's dive into the results.

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Image source: Getty Images.

A dramatic spike

Investors don't have to squint to see the impact of COVID-19 on eBay's growth pace. Gross merchandise volume had declined in each of the last five quarters in the U.S. market and hovered around negative 4% in its international business. But in Q2, U.S. GMV jumped 35% and international gains landed at 22%. These boosts combined to push global volume up 26% to surpass Wall Street's expectations.

Management reiterated what it said in late April, noting that pandemic shopping changes have boosted each of eBay's key growth metrics, including traffic, conversion rates, sales volumes, and buyer acquisition. That last figure was a key standout, with 8 million new buyers joining the service in Q2. That translates into a 5% spike compared to the 2% increase eBay had achieved in each of the last two quarters.

Cashing in

eBay is hoping to keep all the new sellers it has attracted to its platform, and so it cut seller expenses in the period to try to encourage more listings. Its overall transaction fee held steady at 9%.

WMT Operating Margin (TTM) Chart

WMT Operating Margin (TTM) data by YCharts.

But the surging revenue base combined with falling expenses to produce some head-turning financial metrics. Operating margin jumped to 34% of sales from 29% a year ago, leading to a 125% earnings increase, up to $1.04 per share. eBay converted 30% of its sales base to free cash flow, and that $866 million haul gave management plenty of resources to direct toward paying down debt and investing in growth programs.

The rest of the year

Executives raised their 2020 outlook after predicting that sales and profitability will both increase again in Q3. Marketplace volume growth should land in the "high teens" percentage, they said, down from the recent 24% spike. Earnings will expand even faster thanks to eBay's asset-light selling model. CEO Jamie Iannone and his team now see organic sales rising by between 12% to 14% this year compared to a flat result in 2019.

eBay was careful to stress that it's not possible to say where growth trends will settle given all the volatility in the economy today. "It is difficult to predict exactly how buyer behavior, retail channel shifts, and changes in the economic environment will affect our volume over time," management said in a press release.

The good news is that, wherever growth settles following this temporary spike, it's clear that eBay will have more cash at its disposal and a far larger base of buyers and sellers on its marketplace platform. The question heading into 2021 is whether it can translate those valuable assets into faster sales growth than the flat result investors saw in 2019.