eBay Makes It Look Easy

Confounding critics and naysayers, the online auction giant continues to grow.
I've written plenty of columns about eBay over the past five years, and I'm relieved to say that early on I saw the online auction giant would emerge as one of the few big winners in the Internet space. Otherwise I wouldn't provide links to these old eBay columns here, here and here.

But I must confess that what eBay has achieved to date, and the breadth and scope of the company's vision, has dwarfed my limited imagination. Sure, it was obvious even back in the embryonic days of ecommerce that eBay's rapid ascendance would render unassailable its position as the top Internet auction site. What wasn't as clear -- to me, anyway -- was how effectively eBay would be able to leverage its auction business into international markets and non-auction revenue streams.

eBay bears on Wall Street have been growling since the auction company missed analysts’ estimates for the fourth quarter of 2004, and shares fell from $59.21 last Dec. 31 to as low as $30.78 in late April.

Based on its second-quarter earnings released Wednesday, however, eBay skeptics may have to reconsider whether the company has passed its peak.

EBay shocked the street by reporting 53 percent growth in Q2 earnings. The company earned $291.6 million, or 21 cents per share, for the three months ended in June. That's up from $190.4 million, or 14 cents per share, in Q2 2004. Analysts had forecast earnings of 18 cents per share.

EBay CEO Meg Whitman told analysts in a conference call that the company "saw strong growth across every part of the business around the world." But two aspects of the company's business deserve special mention. One is international marketplace net revenue, which soared 51 percent to $418.8 million on the back of strong sales in Germany, which now is the company's No. 2 market.

What's interesting here is that eBay's global revenues are set to surpass U.S. revenues for the first time. The company's U.S. operations generated $423.6 million in Q2, an increase of 27 percent over the year-ago quarter, but less than $5 million more than international revenue. In Q3 we should see eBay's international sales eclipse U.S. revenue for good.

The second item of interest in eBay's Q2 report involves the growth of its online payment service, which comprises the balance of the company's $1.086 billion in Q2 revenue. EBay bought online payments company PayPal in October 2002, and the acquisition is (no pun intended) paying off spendidly.

Revenues from PayPal's transaction fees in Q2 were $243.9 million, a gain of 51 percent from the year-ago quarter and 145 percent from Q2 2003. And the number of registered PayPal users shot up to 79 million from 50 million a year ago.

If transaction revenue continues to grow this quickly, it may only be a couple of years before eBay's U.S. auction business becomes the company's third-best revenue generator.

Another interesting aspect of eBay's revenue model is it's somewhat evenly spread out among a number of categories, with one glaring standout. Among the categories delivering more than $1 billion in gross market value are:

  • Clothing and accessories -- $3.3 billion
  • Consumer electronics -- $3.2 billion
  • Computers -- $2.9 billion
  • Home and garden -- $2.5 billion
  • Books/Movies/Music -- $2.4 billion
  • Sports -- $2.1 billion
  • Collectibles -- $2.0 million
  • Toys -- $1.6 billion
  • Jewelry and watches -- $1.5 billion
  • Business and industrial -- $1.5 billion
  • Cameras and photos -- $1.3 billion
  • What's the standout? EBay motors, which generated $14.3 billion in GMV for Q2, more than four times the runner-up. And that's the part of eBay's business I was most skeptical about when it was launched several years ago.

    Shares of eBay jumped nearly 21 percent to $42.10 Wednesday after earnings were reported. Given the company's growth potential, market dominance and savvy executive leadership, EBAY continues to look like a good stock bet.






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