EBay's 3-Year Comeback and Why PayPal Needs to Move Offline

EBay's 3-Year Comeback and Why PayPal Needs to Move Offline
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Can an aging internet company be a comeback kid? More and more, at least for eBay, it looks like the answer is yes.

Continuing a three-year turnaround, eBay reported significant second-quarter revenue gains today, including a 20 percent jump in the earnings of its PayPal division over the second quarter of 2012. Its stock closed at more than $57 a share, and it announced second-quarter revenue of $3.9 billion, up from $3.4 billion a year earlier.

The trailblazing ecommerce company hasn't seen market interest like this since the end of 2004, when its stock soared to an all-time high of more than $58 a share. But by March 2009, it had plummeted to $10.43.

A pivot to mobile is largely responsible for restoring eBay's fortunes. Chief executive John Donahoe, who joined the company some five years ago, was prescient in seeing opportunities in mobile shopping for eBay to capitalize on. In the past few years, it has enhanced its mobile apps, improved its marketplace's search tool and incentivized sellers to offer free shipping.

Meanwhile, the market for ecommerce and mobile shopping has grown as smartphones have become more sophisticated. "With these devices getting better and better, it's like your store is open longer and has better lighting," says Benjamin Schachter, an internet analyst at Macquarie Securities.

Following the trend, eBay enabled one-click purchasing through its mobile apps. Amazon, eBay's largest competitor, also offers one-click buying to encourage impulse purchases.

To be sure, eBay is not yet a world-beating company. Its earnings for the third quarter of 2012 and for the first quarter of this year, though encouraging, fell below analysts' expectations. The second-quarter results, due out today, are also forecast to fall below analysts' projections.

Schachter dismissed the idea that eBay may have become the victim of its own recovery, struggling to meet inflated analyst expectations. But he did note that the stock's current high reflects the potential for PayPal to move offline, becoming a payment method in brick-and-mortar stores. "That's the next big catalyst for their stock," Schachter says.

EBay is taking steps in this direction. A partnership with credit-card company Discover, announced last year and slated to begin later this year, would allow customers at more than 7 million physical store to make purchases using their PayPal accounts.

Update: This story has been updated to reflect eBay's earnings report and its closing stock price on Wednesday, July 17, 2013.

Related: PayPal Goes Galactic, Moves to Cash in on Space Payments

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