eBay's Q2: PayPal, Skype growth offset by declines at marketplace sites
eBay today reported solid second quarter financial results that were slightly better than Wall Street's expectations but revenue growth of PayPal and Skype was offset, in part, by declines in the Marketplaces business.
Context & Ripple Effects
The quarter caps a busy restructuring stretch for eBay: in April 2009 the company announced a plan to separate Skype via an IPO targeted for the first half of 2010 and sold StumbleUpon back into independence, sharpening the portfolio down to its two engines — Marketplaces and PayPal.
Q2 extends the pattern set in April's report of $2.02 billion in Q1 revenue: PayPal and now Skype are growing fast enough to offset continued erosion in the core auction business, which is why Bloomberg framed the beat as evidence the turnaround plan is working.
First-order effects
- PayPal and Skype now function as eBay's growth engines, covering for a shrinking Marketplaces segment — the division that still defines the brand is no longer the one driving the numbers.
Second-order effects
- With Adaptive Payments, the more flexible API PayPal was preparing as of early July 2009, PayPal is positioned to challenge Amazon's fledgling payment service rather than rely solely on eBay checkout volume — decoupling its growth from the marketplace it was built to serve.
- Skype's momentum, including an iPhone client offering free Wi-Fi calls, strengthens the asset ahead of the planned separation, giving prospective public-market investors a consumer-growth story rather than a cost center.
Third-order effects
- If the split holds, eBay is structurally becoming a holding company around a payments network and a communications franchise, with the auction marketplace relegated to a cash-cow role — the opposite of the integrated-commerce thesis behind its earlier acquisitions.
The trend: eBay's value is migrating from its marketplace to its payments and communications assets, a rebalancing the company itself is accelerating through divestitures and a planned Skype IPO.