Ebay’s efforts to counter decline paying off

Ebay performed slightly better than expected in the second quarter, reporting $2.1bn in revenue as its core marketplace business stabilised and business at PayPal and Skype picked up.

Ebay, the US’s most-visited e-commerce site and a company that has previously thrived during tough economic times, has been hit hard by this financial crisis. As consumer spending dipped, the site saw visitors and page views decline. At the same time, buyers and sellers grew dissatisfied with an increasingly unpredictable auction experience.

John Donahoe, chief executive officer, has been spearheading a turnround effort designed to counter this decline and Wednesday’s results suggest his efforts may be beginning to pay off. The company’s core marketplaces division took in $1.26bn, a 14 per cent decline from a year earlier, but its payments and communications units, which include PayPal and Skype, both reported brisk growth.

“[The company was] not only suffering from cyclical problems, but also from structural problems,” said Sandeep Aggarwal, an analyst at Collins Stewart. “On the structural side, we think they are making a positive impact.”

Mr Donahoe has moved to refocus the company on e-commerce. In April, he said he would spin off Skype, the internet phone service it acquired for $2.6bn in 2005. Ebay also announced it would acquire South Korean online marketplace Gmarket for $1.2bn, accelerating its move into Asian markets.

However, it will be small adjustments to Ebay’s core marketplace businesses, not ancillary acquisitions, that determine the company’s success. In recent years Ebay made changes that seemed to favour large, professional retailers, instead of the independent sellers who propelled the site’s early growth. This alienated many of its buyers and sellers, driving them to more niche online auction sites. But in May, Mr Donahoe began trying to woo back the small sellers by eliminating some listing fees.

Still, the competing missions of Ebay’s marketplace – to be a flea market for curio hunters and a depot for bargain hunters – has hurt its traffic. Visitors to the site were down 14 per cent from the previous year in May. More troubling for the company, page views that month were down 32 per cent.

Ebay is losing market share to Amazon.com, which is growing rapidly.

Mr Donahoe led the results announcement with its payments unit, which he has begun to call a “second core business”.

The unit, dominated by PayPal, brought in $669m during the quarter, an increase of 11 per cent. Active registered accounts topped 75m, up 20 per cent from a year earlier.

Shares were up more than 39 per cent during the quarter, closing on Wednesday at just less than $20.