eBay Tries, Wall Street Shrugs

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Perhaps eBay's biggest challenge isn't revamping the shopping experience but convincing investors to look at eBay in a new light. The company maintains that it is a portfolio of e-commerce businesses that's no longer as dependent upon the volume of items sold on its shopping sites for revenue growth. "It goes without saying that our company is a very different one than it was in late 2004," Whitman said during a conference call with investors (see BusinessWeek.com, 4/23/07, "eBay's Changing Identity").

In addition to its shopping business, eBay has the largest online payments service in PayPal and the largest Internet telephone service in Skype. This quarter, PayPal's revenues swelled 34% from last year to $454 million. Roughly $5 billion of the total $11.69 billion in payments processed during the quarter came from off-eBay sites, representing a 57% increase in eBay's off eBay payments business from the prior year. That growth is important because the more business PayPal does off of eBay, the more shielded eBay is in the event of a sales decline on eBay's core shopping sites.

No Takeoff Yet

Skype posted its second profitable quarter, growing 103% from last year, to bring in $90 million in revenues, To date, significant competition in Voice Over Internet Protocol (VoIP) calling from Yahoo! (YHOO) and Google (GOOG), cable companies such as Time Warner (TWX), and telephone companies such as AT&T (T) has yet to materialize, Whitman says. "We have extended our lead dramatically," says Whitman. "We see a lot of innovation from the cable companies, but that has not impacted Skype's growth."

Recently, eBay has also moved aggressively into online advertising through partnerships with Google and Yahoo as well as with its classified ads business Kijiji and a 25% stake in leading U.S. classified site Craigslist. That business grew 96% from the second quarter of 2006, bringing in $76.2 million in revenue. EBay plans to keep its stake in Craigslist as well as eventually start selling paid listings on Kijiji. Whitman hopes that business could have a significant impact on eBay's revenues in 2009 (see BusinessWeek.com, 7/06/07, "eBay Takes on Craigslist").

Despite the results and promise of eBay's nonshopping businesses, investors want eBay to prove it can spur more mature sellers and buyers to sell and shop on eBay's U.S. and German sites. Until eBay gives them what they want, the stock is unlikely to post large gains—even when the company boasts 50% profit growth. American Technology Research analyst Tim Boyd summed it up in a July 13 note to investors. "We believe that signs of re-acceleration in core marketplace growth will be required before the stock can really take off."

Holahan is a writer for BusinessWeek.com in New York.