Fast Growth in eBay Inc (EBAY) Earnings Could Send Shares Soaring

eBay Inc (NASDAQ:EBAY) will release its quarterly report on Wednesday, but investors are already expecting a lot from the auction giant. After having given back some of its gains from earlier in the year, the stock is once again making a run at all-time record highs on the strength of its two-part business model.

In the past, most investors have looked solely at the company’s PayPal unit as the part of the company with the most growth potential. But eBay Inc (NASDAQ:EBAY)’s legacy marketplace business has also pulled its share of the earnings weight lately, as the company has come up with good answers to compete better against its retail rivals. Let’s take an early look at what’s been happening with eBay over the past quarter and what we’re likely to see in its report.

Stats on eBay

Source: Yahoo! Finance.

Can eBay earnings keep knocking it out of the park?
Analysts have actually made a minor cut to their calls on eBay Inc (NASDAQ:EBAY) earnings over the past few months, reducing their June-quarter estimates by $0.02 per share. But they’ve kept their long-term earnings expectations constant, and the stock has recently regained just about all the ground it had lost since early April.

eBay’s losses came after its first-quarter earnings report, in which the company’s revenue came in slightly below expectations. Sales growth of 14% wasn’t quite enough to keep growth investors happy, especially coming on the heels of a strong holiday quarter that had showed revenue gains of 18% year over year. Yet the double-digit growth rates that eBay managed to deliver show just how high investors’ expectations of the online giant are.

The surprising thing about eBay’s growth success lately is that it has come despite the continuing stranglehold of Amazon.com, Inc. (NASDAQ:AMZN) over the online retail industry. eBay Inc (NASDAQ:EBAY) shares have dramatically outperformed Amazon’s for more than a year now, as it has successfully focused on high-growth areas like mobile e-commerce and emerging-market retail. Although the company remains well behind Amazon.com, Inc. (NASDAQ:AMZN) in terms of overall revenue, eBay’s valuation is a lot more attractive based on just about any conventional earnings- or cash-flow-based model.

Of course, PayPal has been a huge contributor to eBay Inc (NASDAQ:EBAY)’s sales, and even though Amazon has reportedly started working on a competing payment service, PayPal has made strong moves into the store-retail area, with expectations that the service will be accepted at more than 2 million retailers by the end of 2013. So far, that’s been enough to hold Google Inc (NASDAQ:GOOG)‘s Wallet at bay, even though Google has been updating Wallet to link payments to its Gmail service and building security infrastructure into its Chrome browser.