eBay modestly beats the Street

Earnings were better than expected, and its PayPal business remains strong--but the uncertain economy in Europe may put a damper on some of the eBay auction business' strongest regional growth.

Wall Street was predicting that tepid performance by eBay's auction business would offset strong gains by its PayPal division in its second-quarter earnings, but the e-commerce giant ended up beating expectations: It posted revenue of $2.2 billion, when $2.16 billion had been predicted.

That's a 6 percent gain from the second quarter of 2009, or a 15 percent gain if you consider that eBay sold off the majority of its ownership in telephony service Skype last November. PayPal performance was strong, as expected, posting record revenue for a second-quarter time frame.

"We delivered strong second quarter results, demonstrating the global strength and increasing diversity of our business," CEO John Donahoe said Wednesday in an earnings release, sent out after markets had closed. "PayPal is strong and getting stronger, building a robust and innovative global footprint serving all of e-commerce. And our eBay turnaround remains on track, with strong performance in Europe, significant changes in the U.S. and continued improvements to the buying and selling experience."

The eBay Marketplace auction business is growing notably faster in Europe than in the U.S., where it's been slow as of late. But the strength of the U.S. dollar may take a hit to that, the earnings announcement noted.

Donahoe said onstage at a conference last summer that he believed PayPal would ultimately be bigger than eBay.com itself within about a half dozen years. Right now, it's adding 1 million new accounts per month.

PayPal, however, may have to confront the fact that earlier this month eBay was served with a $3.8 billion lawsuit on behalf of a Connecticut-based plaintiff that claimed the company violated several PayPal patents that had been shared as part of a confidential agreement. eBay's only public statement about the suit says that the company considers it to be " without merit ," but the complaint is long and detailed enough that the possibility exists that it's more serious than the mischief of a frivolous patent troll.

But there's an additional bit of indirectly good news for PayPal: Social-networking behemoth Facebook, which just hit 500 million active users around the world, is finally making the e-commerce moves that it's been hinting at for years. But instead of building a rival service to PayPal, the two companies have partnered .

 

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