Technology Market Leadership Part 1: Ebay's Quarter

Technology was in the spotlight again today. The Nasdaq was the pace-setter in trading all day as a couple heavyweights were set to report earnings.  Online Auction pioneer Ebay (EBAY) and electronics darling Apple (AAPL) continued a slew of positive earnings reports cementing tech's leadership role in the road to market recovery.
The auction business for Ebay had been stumbling for quite sometime, in fact even before the recession, so today's quarterly report may just be what is needed to turn the corner here. Ebay, is trying to reign in its businesses and truly become the global auctioneer.  This was most evident of late as management outlined a plan to take its Skype Internet Phone product and churn out an IPO next year, separating the unit after years of failed synergies.  Ebay also bought a controlling stake in Gmarket, a South Korean online auction house.  Best way to break into new markets? Why, buy local of course!

These recent announcements meant Ebay's dragging share price was finally finding some life, rising 22% over the last month, including 3% today before their numbers. Investors had more to smile about as Ebay delivered a solid report, sending shares higher by 5% in after-hours trading.

Highlights from Ebay included earnings of $357Million ($0.28/share) based on GAAP. Non-GAAP numbers, the numbers that analysts were looking at included profits of $500Million ($0.39/share). Expectations were beat by 5 cents a share and eBay also generated free cash flow of $577Million from its quarterly $2.02Billion in Revenues.  These totals point to overall revenue declines of 8% and profit declines of 11%.  Analysts however, certainly feared for worse.  Ebay guiding within expected ranges also helped its cause in after-market trade.

So where does Ebay's growth and strength come from? PayPal, classifieds and Skype were the main drivers of Revenue year-over-year upside, so the main auction businesses still remain mostly catatonic.  But with Ebay looking to expand its online presence Investors are likely to chalk this one up to the economy.  Auction related business fell 18%, while Skype and Payments (PayPal etc.) growth on a revenue basis was 21% and 11%, respectively.

Granted the online auction slide doesn't look all that fantastic, but with economic recovery the expectation is that this business can pick up again.  With eBay looking to expand into more markets, the additional global reach of the brand will certainly broaden the revenue stream. With its collection of shopping and auction websites, including Shopping.com and Stubhub.com et al, eBay finds its reach expanding into specific niche businesses making it that much tougher for any start up or smaller competitor. Ebay has also ramped up its online classifieds business, and that grew 23% year over year. Taking all these together, CEO John Donahoe's vision and three-year growth targets look that much more likely.

Given eBay's recent run-up it is intriguing but not ideal to jump into the company stock tomorrow.  However, these numbers and the guidance that came with them confirms that eBay is very much ticking and should be watched.

Disclosure: Author holds no position in EBAY

What's better for eBay, More from Less or Less from More?

As eBay's (EBAY) quarterly earnings came out there seemed to be both some answers and yet more questions, so I'll pose another one. Which is better More from Less or Less from More?

In other words, can eBay continue to provide revenue growth (a.k.a. More) from a shrinking number of listings (a.k.a Less) by increasing prices, or would it be better for the company to spur growth by driving More listings and perhaps charging Less?

The company reported official earnings of $0.27/share vs. $0.17 a year ago, and when taking into account everything reported $0.34/share vs. the consensus $0.32/share. So shouldn't every thing be rosy with an earnings beat? Well not so fast because digging into core business metrics reveals another story. Listings, a staple of eBay's business fell once again by 2% compared to a year ago. To make matters worse for the stock, management said that revenue growth would outpace listing growth.

eBay has made strong acquisitions in the past with PayPal and it's recent purchase of StubHub.com. It's purchase of Skype for billions is still up in the air, however revenues from that division were $89 million in it's second straight profitable quarter. But the question still remains, what happens to the company growth prospects if the current listings trend continues? There will eventually be a point where eBay customers will not want to pay more, so the company has to find some way to entice new customers.

However, for the time being management seems confident in the overall business as it raised guidance for the rest of the year. Should you be as confident in the stock's resurgence mainly through other revenue streams? I for one would wait to see some sort of turnaround in the core listings business before paying 38 times earnings for a company that praises the performance of secondary revenue streams PayPal and Skype.

Disclosure: Author holds no position in EBAY