5 reasons eBay is back

Under CEO John Donahoe's watch, auctions are out and PayPal mobile payments are the moneymaker.

By Jason Notte Feb 7, 2013 3:33PM
Visitors pass the Ebay logo at the CeBIT computer fair in Hanover March 2, 2011 (Tobias Schwarz/Newscom/Reuters)If you haven't been on eBay (EBAY) in a while, allow it to reintroduce itself.


The auctions, the last-minute bids and online yard sales are largely gone. In its place is an e-commerce marketplace bolstering itself to compete with Amazon.com (AMZN), beefing up its PayPal mobile payments branch to help retailers snag an increasingly mobile market and a revenue dynamo that was once on its way to becoming a dot-com relic.


Fortune's JP Mangalindan recently detailed eBay's resurgence in depth, but the company's numbers tell the short-form version of the story.


Last year, eBay posted $14.1 billion in revenue, up 21% from a year earlier. Its payments business, anchored by PayPal, grew 26% to $5.6 billion in revenue. Meanwhile, sales at its eBay Marketplaces were up 11% as fixed prices continued to replace auctions. As a result, eBay's share price has soared 70% in the last year and outpaced the performance of Amazon and other tech-sector competitors.


While tech turnarounds aren't impossible -- just take a look at Apple (AAPL) after Steve Jobs' return, for instance -- their relative rarity makes eBay's five-year surge especially noteworthy. Looking back at eBay's last half-decade, there are five specific moments that turned it around:


1. Naming John Donahoe CEO in 2008. EBay's leader joined the company as the head of its marketplaces unit in 2005 and saw a company that was already being eaten alive by competitors like Amazon and Google (GOOG). It was letting PayPal collect dust after purchasing it in 2002, it just spent nearly $2.6 billion on Skype's video chat service for reasons unknown and flash sales from sites like Groupon (GRPN) were biting off business that Google's algorithms were already funneling away.


When former CEO Meg Whitman stepped aside in 2008 before taking the same gig at Hewlett-Packard (HPQ), she pitched the whole mess to Donahoe and let him make the uncomfortable decisions. He laid off 1,600 workers, or 10% of eBay's workforce, almost immediately. He changed the fee structure to make it easier for sellers to list items but less lucrative for them to sell. Share prices plummeted from their high of $58 in 2004 to just $10 in 2009, but help was on the way.


2. Getting out of auctions. One of Donahoe's first orders of business was to make eBay seem like the benevolent force fighting the evils of Amazon. He imposed strict regulations on third-party sellers to clean up the marketplace and used PayPal to give retailers an online payment option and a reason to list on his site. Since Donahoe took over, auctions have shriveled to just 30% of all sales in the marketplace and just 10% of eBay's overall business. The company's biggest transaction, however, didn't happen in the Marketplace. . .


3. Selling Skype for $2.5 billion in 2009. Why would an online auction site buy a video chat service? Just about everyone wondered this aloud in 2005 when eBay shelled out nearly $2.6 billion in cash and stock for Skype and couldn't come up with a way to use it. What were they going to do, have an auctioneer calling bids on one screen and a conference call full of people holding up paddles on hundreds of others? Donahoe not only recognized his predecessor's mistake, but saw how all of that Skype money could be put to better use. After eBay sold Skype to a group of investors in September 2009, Donahoe got a bit more practical about acquisitions.


4. Buying GSI Commerce for $2.4 billion in 2011. Now the pieces are coming together. GSI Commerce built and managed online shopping sites for companies like Dick's Sporting Goods (DKS), Zales (ZLC) and RadioShack (RSH). As you may recall, eBay just happened to have a nice little online payment service called PayPal kicking around. By combining the two, eBay became an even larger force in the e-commerce market and positioned PayPal as the payment option of choice for online retailers. But why limit yourself to online when mobile shopping makes brick-and-mortar stores PayPal-accessible as well?


5. Teaming up with Discover (DFS) in 2012. Last year, the company announced a deal with the credit card company that allows customers to check out using their PayPal accounts at the register. Home Depot (HD) and Foot Locker (FL) had already made agreements with eBay to accept PayPal payments, but the acquisition of mobile transaction company Zong in 2011 gave PayPal legs and made it an enticing option for Discover and its network that includes 90% of U.S. merchants.


The move helped eBay strengthen its partnerships with retailers to the point that it could offer customers the same-day shipping app eBay Now, an app that lets users have items from retailers like Target (TGT) and Best Buy (BBY) delivered to their door in an hour. While it's only available in New York City and San Francisco, eBay Now is expected to expand to other major cities this year.


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4Comments
Feb 7, 2013 5:02PM
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Why dont Somebody ask Ebay why they freeze your account that you cant use the money  for 2 to 3 weeks while they are putting that into a short term interest bearing account. Just think of all the people around the country they doing this to, that is quite alot money in interest they are collecting using my money and everybody else. They dont  pay me any interest for using my money or anybody else. Banks cant get away with doing that.If anybody out there with any legal clout ought to be asking them how they get away with that. They charge you on the front end for placing the ad and then they collect interest on the item total price. To add insult to injury they freeze your account while they are collecting interest on your money.  
Feb 7, 2013 7:00PM
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Obviously you just read the company line handed to you.Really..you should actually do some research..Since when is 30% (auctions) of a business considered "shriveled"?? Perhaps do some actual research..check out the community forums and learn the truth of what a wonderful entity Ebay WAS. Check out how it favors the Chinese over their own countrymen.Again..do some research then your article (or faxed copy straight from EbayPR  department) may have some credibility.
Feb 8, 2013 12:01PM
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Another seller site is Get Me The - www.getmethe.com
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I  am  on Fee-Bay  but  I  have been using A FREE Auction Site  Called

Wensy.com  It is  growing everyday

Dave @ hisnherz

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