eBay Has Its Flaws

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Things are looking up at eBay (NAS: EBAY) , though things aren't as great as they may seem at first glance.

The online auction and financial transactions leader posted better-than-expected quarterly results last night. Revenue climbed 35% to $3.4 billion. Earnings exploded 260% to $1.51 a share.

However, both of those numbers are optical illusions. The revenue spurt doesn't represent organic growth, since eBay acquired e-commerce enabler GSI during the second quarter of last year. Back that out and revenue climbed at a more modest 21% clip. The pop in profitability was largely related to the one-time gain in selling a majority stake in Skype to Microsoft (NAS: MSFT) . On an adjusted basis, earnings actually clocked in at $0.60 a share.

The showing is still impressive. Analysts were banking on net income of $0.57 a share on $3.3 billion in revenue.

PayPal continues to be the superstar here. There are now 106.3 million active registered users, 13% ahead of where the payment platform was a year earlier. Revenue soared 28% for the division, and international revenue exceeded its stateside stake for the first time in company history.

Over at eBay's namesake marketplace business, revenue climbed a respectable 16%. It could be better, of course. The holidays did just occur, and eBay had been trying to pass itself off as a hot online shopping spot. In that sense, 16% isn't all that inspiring. E-tail leader Amazon.com (NAS: AMZN) reports later this month, and analysts are holding out for 41% in top-line growth.

In terms of auctioneers, eBay isn't growing as fast as Latin America leader Mercadolibre (NAS: MELI) , but it's also the one fetching a reasonable earnings multiple in the low teens.

Things aren't perfect. Some may argue that eBay's getting too greedy. After all, total payment volume surged 24% (which is great on a mere 13% year-over-year uptick in active registered users) but revenue spiked 28%. Marketplace revenue climbed 16%, though the gross merchandise value exchanged only grew by 10%. In other words, eBay's milking more money out of its users -- and that's not going to sit well with folks who are already skeptical about eBay's moves in recent years.

Squeezing more money out of its users should result in chunkier margins, but why did adjusted net income only grow by 15%? GSI may be a drag here, but keep in mind that even backing out GSI's revenue would still result in growth headier than 15%.

Investors fretting about the margins aren't going to like eBay's guidance for all of 2012. The company is targeting tweaked earnings of $2.25 a share to $2.30 a share this year on revenue of $13.7 billion to $14 billion. The pros were actually expecting $2.31 a share in profitability on a little less than $13.7 billion. The top-line guidance is high, but the bottom-line company target is too low.

Oh, well -- since Amazon's margins lately have also been disappointing, maybe eBay is just out to make a fashion statement.

Now that both PayPal and eBay.com are generating more international revenue than money made closer to home, it's time to view this as a global investment. If you want a better globetrotter play than eBay, consider these three American companies set to dominate the world. It's a free report, so check it out now.

At the time this article was published The Motley Fool owns shares of Amazon.com and Microsoft. Motley Fool newsletter services have recommended buying shares of Amazon.com, eBay, and Microsoft. Motley Fool newsletter services have also recommended writing puts in eBay and creating a bull call spread position in Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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