EBay's Turnaround Is Taking Root

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EBay also reported strong growth in Skype, the Internet phone service it plans to spin off in an initial public offering next year. Skype added 37.3 million new users, and revenues grew 25% to $170 million.

Despite the early turnaround signs, analysts say eBay is still losing ground to Amazon. Since becoming more dependent on sales of goods sold at fixed prices rather than auctions, eBay has found itself in closer competition with the e-commerce king. EBay is "doing all the things they need to do to improve the platform, but the real challenge is that Amazon is also moving aggressively to make its platform better for buyers," says Cowen's Friedland.

Case in point: Amazon on July 22 bought online shoe retailer Zappos.com for $847 million.

Amazon's Edge

In the first quarter of this year, the value of goods sold on Amazon in the U.S. increased 21% over the previous year; the value of goods sold on eBay in the U.S., excluding the poor-performing autos segment, fell 11%. During the second quarter, eBay's merchandise sales fell 8%. Amazon reports second-quarter earnings July 23.

EBay is also likely losing Web traffic to Amazon. In June, eBay had 71 million visitors to its e-commerce site, a drop of 2.7%, according to market researcher ComScore (SCOR). Amazon's traffic grew by 10.5%, to 63 million.

In a conference call with analysts, eBay CFO Bob Swan pointed to the company's recent acquisitions of Bill Me Later, a credit processing service, and Gmarket, South Korea's top e-commerce site. He said both of these businesses will begin contributing to the company's bottom line by the end of the year.

"You're starting to see the first bit of light at the end of the tunnel," says Jeffrey Lindsay, analyst with Sanford C. Bernstein. "There's still quite a bit of tunnel yet, but at least it's not pitch black anymore."

Douglas MacMillan is a staff writer for BusinessWeek in New York.

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