The coronavirus pandemic hit the economy hard, resulting in significant damage for some industries while boosting others. E-commerce stalwart eBay (NASDAQ:EBAY) falls into the latter camp. It benefitted from stellar second-quarter earnings, propelled by increasing consumer e-commerce engagement related to shelter-at-home conditions.

U.S. e-commerce sales are projected to grow 18% this year due to the pandemic's effects. This suggests eBay's Q2 performance will continue. Let's examine where eBay is to see if its stock might make a good investment for your portfolio.

A miniature shopping cart with packages sits on a computer keyboard.

Image source: Getty Images.

A sudden performance boost

eBay experienced an impressive 18% increase in year-over-year revenue to $2.9 billion for its second quarter. This growth was fueled by a whopping 26% increase in gross merchandise volume (GMV), which represents the total value of transactions processed through eBay. GMV reached $27.1 billion in Q2, a significant reversal of the past year's trend.

Quarter Gross Merchandise Volume Year-Over-Year Change
Q2 2020 $27.1 billion 26%
Q1 2020 $21.3 billion (1%)
Q4 2019 $22.0 billion (5%)
Q3 2019 $20.5 billion (5%)
Q2 2019 $21.5 billion (5%)

Data source: eBay.

eBay makes the bulk of its revenue from charging fees on transactions made through its platform. This makes increasing GMV a key part of eBay's success.

The second quarter's GMV growth was driven by a sudden surge in active buyers. The number of active buyers had stalled at 174 million for the prior three quarters before jumping to 182 million in Q2 as more consumers shifted shopping to online channels during the pandemic.

Given the strong Q2 performance, it's no surprise the share price has reached new heights after remaining below the $50 per share level for years.

EBAY Chart

EBAY data by YCharts.

What's next?

Can the second quarter's success continue? eBay believes so. It expects third-quarter revenue to come in between $2.6 billion and $2.7 billion. The company raised its full-year guidance by $1 billion to come in north of $10.6 billion.

eBay also appointed a new CEO in April, Jamie Iannone, formerly of Walmart's e-commerce division. Iannone wants to deliver much-needed technology enhancements that focus on the needs of eBay users.

He plans to modernize eBay's antiquated platform, using next-gen technology such as artificial intelligence to enhance the experience for both buyers and sellers. He noted this plan "will be a multi-year journey," so it will be some time before investors see the fruits of his efforts.

The bottom line

eBay's second-quarter success appears likely to continue, at least for this year. A survey of U.S. adults found that 71% plan to perform more than half their holiday shopping online this year. Another survey learned nearly half of respondents were more interested in online shopping this holiday season than last year. This increased online shopping interest for the holidays can continue to power eBay's growth.

But its prosperity may prove short-lived if the company doesn't address the issues that left it with moribund GMV for the quarters before the pandemic. It's fitting that eBay hired a former Walmart executive for its CEO since forecasts predict Walmart to overtake eBay as the second-biggest e-commerce player in the U.S. this year. And if you consider the GMV running through e-commerce platform Shopify, eBay would drop to the fourth-largest e-commerce player in the U.S.

eBay's platform retooling under Iannone is just getting started. Meanwhile, the company will benefit for the next few quarters from the organic growth in online shopping. After that, if it's not delivering an improved shopping experience for sellers and buyers, eBay will fall further behind its e-commerce rivals. As a result, I recommend a wait-and-see approach to investing in eBay at this time.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.