Source: eBay.

eBay (NASDAQ:EBAY) reported earnings for the second quarter on July 16. It was a tricky quarter for the company, as eBay suffered from a security breach that forced it to have all its marketplace users reset their passwords. However, eBay is still generating solid performance fueled by impressive growth in its PayPal division.

The numbers

Total sales came in at $4.37 billion during the quarter, a 13% increase versus the same quarter in the prior year, and roughly in line with analysts' expectations of $4.38 billion. Total company enabled commerce volume -- ECV -- increased 26% to $62 billion.

Source: eBay.
*Enabled Commerce Volume (ECV) includes Marketplaces GMV (excluding vehicles and real estate), Payments Merchant Services Net TPV and eBay Enterprise Gross Merchandise Sales not earned on eBay or paid for via PayPal or Bill Me Later during the period; excludes volume transacted through the Magento platform.
**eBay take rate is calculated as eBay Revenue / ECV.

Mobile ECV grew by a remarkable 68% year over year, reaching $12 billion, or 20% of total volume during the quarter. The company gained 6.6 million new customers via mobile during the period, more than double the 3 million new customers gained through mobile in the second quarter of 2013. Mobile seems to be the name of the game in the industry, and eBay is clearly performing well in that area.

Cross-border trade, meaning transactions in which the buyer and seller are in different countries, jumped 26% to $13 billion, representing 22% of total ECV. In the second quarter of 2013, eBay produced $11 billion in cross-border trade, which also accounted for 22% of total ECV for the quarter.

Adjusted earnings per share came in at $0.69 during the quarter, marginally above Wall Street forecasts of $0.68 per share on average, based on data from Thomson Reuters.

For the third quarter, management is forecasting sales in the range of $4.3 billion to $4.4 billion, an annual growth rate of 10% to 13%. Earnings-per-share growth is expected to slow down, as eBay will increase marketing spending in order to recover more rapidly from the negative impact of the data breach. Management expects adjusted earnings per share of between $0.65 and $0.67 during the quarter, an annual growth rate of 2% to 5%.

Business segments

PayPal is eBay's payments platform, which allows individuals and businesses to send and receive payments online and via a variety of mobile devices in approximately 193 countries around the world and in 26 different currencies as of the end of 2013. eBay is also building a related consumer credit business called Bill Me Later, allowing customers to receive credit at the point-of-sale for e-commerce and mobile transactions.

The payments segment is firing on all cylinders, net total payment volume -- TPV -- grew 29% during the quarter, with merchant services volume increasing by an impressive 35% and on-eBay volume growing 13%.

PayPal revenues jumped 20% versus the second quarter in 2013 to $1.9 billion, and the payments platform gained 4 million new active registered accounts during the quarter, ending the period with a total of 152 million accounts, an increase of 15%.

PayPal signed a deal with GE Capital to extend their relationship offering a dual-branded retail credit card and committed to purchase the loan portfolio in 2016 for an estimated $1 billion. This should provide PayPal with increased flexibility to expand its credit offerings to both consumers and merchants in the medium term.

The company's marketplaces segment includes its global e-commerce platform,, as well as other localized sites around the world and vertical shopping websites like StubHub. eBay's classifieds websites are also included in this segment.

Marketplaces gross merchandise volume -- GMV -- grew 12% during the quarter, with the U.S. up 10% and international up 14%. Revenue grew 9% year over year to $2.2 billion. Marketplaces gained 3.8 million new buyers, ending the quarter with 149 million active buyers, an annual increase of 14%.

Sales growth decelerated a bit versus the 10% increase in revenues the company generated in the marketplace division during the second quarter of 2013, and marketplaces segment margin declined from 39.7% to 36.3%. Management attributed the decline in segment margin to increased marketing spending during the quarter.

Total marketing spending increased by 18.5% during the quarter, from $771 million to $914 million. As a percentage of total sales, marketing spending increased from 20% in the second quarter of 2013 to 21% of total revenue.

Management feels confident about prospects for accelerating growth as the company increases its spending in couponing, seller incentives, and marketing in the medium term. "We have begun to see some recovery in the first part of July and we are confident we will get these challenges behind us, but it will take a bit longer and we will invest more as we work to get back to double-digit growth," said CFO Bob Swan on the conference call.

Although performance in the marketplace segment was not all that bad considering the circumstances, it's important to note that Amazon continues outgrowing eBay and consolidating its position as the heavyweight champion in the industry.

Amazon reported a total increase in sales of 23% during the second quarter, reaching $19.34 billion. Amazon revenues in the product division increased 19.6% to $15.25 billion during the period.

eBay Enterprise is a leading provider of e-commerce technologies, omnichannel operations, and marketing solutions for global retailers and brands. The segment includes the operations of GSI Commerce, which eBay acquired in June 2011. eBay Enterprise generated $940 million in gross merchandise sales for its clients, an annual increase of 15%. Revenue was $267 million during the quarter, up 3% versus the second quarter in 2013.

Key takeaway

eBay proved during the second quarter that it had the strength to deliver sound financial performance while facing considerable difficulties during the period. Increased spending to reinvigorate marketplaces will drag on earnings in the medium term, but it may ultimately lead to a stronger competitive position in the industry. As for PayPal, this is the major growth driver for eBay, and it continues performing extraordinarily well.