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EBay Gets Its Earnings Groove Back

The company announced record quarterly earnings on Wednesday, following a previous quarter marred by failing to meet expectations, complaints about rising merchant fees, and the perception that eBay wasn't doing enough to block fraud.

EBay Inc. has apparently rediscovered its E-commerce magic. The online marketplace took a key step toward putting a rocky six months behind it Wednesday when it announced record quarterly earnings that exceeded expectations despite market worries that it's losing its competitive edge.

For the quarter ended June 30, eBay posted a profit of $291.6 million, 21 cents a share, on revenue of $1.09 billion, compared with a profit of $190.4 million, 14 cents, on revenue of $773.4 million a year earlier. That translates to more than 53% profit growth and a 40% rise in revenue.

EBay's healthy growth comes at a time when simply meeting expectations doesn't appear to be enough. A day earlier, Yahoo's earnings were termed a disappointment by analysts who expected the company's profit to exceed their earlier estimates. And even though eBay has remained highly profitable, the combination of a below-expectations earnings report in January, complaints about rising merchant fees, and a perception that it's not doing enough to prevent fraudulent sellers from duping unsuspecting buyers conspired to push the value of eBay stock down 40% this year. But it's amazing what a buoyant earnings report can do: After seeing its stock drop 1.4% during normal trading Wednesday, eBay's stock rose nearly 15% in after-hours trading following its earnings announcement.

The success of eBay's quarter was evident everywhere. International marketplace revenue was up more than 50%, to $418.8 million, fueled by the company's growth in markets such as China, France, and Italy. Payment revenue via its PayPal unit also rose more than 50%, to $243.9 million. Categories that exceeded $1 billion worth of goods sold were abundant, indicating that there's no limit on what eBay users can sell. More than $14 billion worth of autos, $3.3 billion worth of clothing and accessories, $3.2 billion worth of consumer electronics, $2.9 billion worth of computers, $2.5 billion worth of home and garden items, $1.6 billion worth of toys, and $1.3 billion worth of photo equipment were sold during the quarter.

CEO Meg Whitman told analysts during a conference call that the company has a lot of momentum going into the coming quarter, and that she believes eBay's long-term prospects are stronger than ever. One key to eBay's near future is the Magellan search engine it's developing, now in beta testing. Whitman said the company hopes to have a good idea of how the technology will affect its business by early next year. "Finding is incredibly important on eBay," she said. "The better we can make finding on eBay, the more robust conversion will be for our sellers."

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