It Won't Be an eBay Christmas

There's still life at eBay (NAS: EBAY) , though it may be running a little low on holiday cheer.

The online auction and financial transactions leader posted reasonable fiscal results last night. Revenue climbed 32% to $3.0 billion. The GSI acquisition completed earlier this year helped pad results, but not by much. PayPal revenue matched the top line's 32% spurt, while eBay's flagship marketplace business still climbed at a healthy 16% clip.

Margins could've been better, and adjusted earnings rose by only 18% to $628.2 million, but that breaks down to the same $0.48 a share that analysts were expecting.

That in itself is a disappointment. You have to go all the way back to the second quarter of 2006 -- more than five years -- to find the last time that eBay didn't beat Wall Street's bottom-line target.

This is often a turning point for a company. When a company that has historically excelled at managing expectations to the point of delivering perpetual beats proves mortal, it's usually a sign of weakness toward the end of the quarter -- and that can often carry over into the current quarter.

Let's not lump Apple (NAS: AAPL) -- with its rare quarterly miss earlier this week -- into this mix. Shifting the release of the new iPhone from summer to fall made all of the difference, and Apple will clearly bounce back during the current quarter. The same doesn't necessarily hold true for eBay.

eBay's guidance for the current quarter calls for an adjusted profit of $0.55 a share to $0.58 a share on $3.2 billion to $3.35 billion. This isn't much of a sequential boost for the holidays, especially now given the growing popularity of PayPal and eBay repositioning its marketplace as an e-commerce solution. Instead of the old open-ended virtual flea market that you may recall from eBay's youth, today's site is loaded with "buy it now" buttons for instant gratification and seller terms that encourage free shipping.

Wall Street, having historically low-balled eBay's reality, was already perched at the high end of that range in forecasting an adjusted profit of $0.58 a share on $3.3 billion in revenue.

This doesn't mean investors should throw in the towel on eBay, but it may mean having to lower their reserve price.

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 teens.

The real reason to own eBay these days remains PayPal. Even though Google (NAS: GOOG) has tried to beef up Google Checkout's exposure -- and credit card giants Visa (NYS: V) , MasterCard (NYS: MA) , and American Express (NYS: AXP) aren't taking the e-threat sitting down -- we still live in a PayPal world. There are now 103 million active PayPal registrations, and those accounts completed $29.3 billion in transactions this past quarter.

PayPal is reason alone to forgive eBay's thinning margins, mortal third quarter, and disappointing outlook -- especially if those shortcomings are presenting a cheaper buying opportunity today.

I've been an eBay cynic in the past, but that "buy it now" button is looking awfully tempting this morning.

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At the time thisarticle was published The Motley Fool owns shares of MasterCard, Google, and Apple. Motley Fool newsletter services have recommended buying shares of Visa, Google, Apple, eBay, and MercadoLibre. Motley Fool newsletter services have recommended creating a write covered strangle position in American Express. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. 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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