How eBay Worked a Comeback

David Paul Morris/Bloomberg News

John Donahoe has led a revival of eBay. “Our multiyear effort is paying off,” he said.

Remember Myspace, Friendster, eToys, Webvan, Urban Fetch, Pets.com? Like meteors, they burned with dazzling brilliance before turning shareholder dollars to ash. EBay, Yahoo and AOL, the dominant Internet triumvirate circa 2004, seemed destined for a similar fate. The conventional wisdom has been that once decline sets in at an Internet company, it's irreversible.

But that was before 's latest earnings surprise, which sent its stock soaring and had analysts scrambling to raise their projections. “Can Internet companies ever turn around? The answer has been no,” Ken Sena, Internet analyst at Evercore, told me this week. “But now, there's eBay. The answer may turn out to be yes.”

If so, eBay's success has big implications for struggling companies like Yahoo and AOL, not to mention more recent sensations that have already lost some luster, like Zynga, Groupon and even Facebook, whose shares tumbled this week after its first earnings report as a public company disappointed investors. “EBay has demonstrated that it's possible to turn the corner even against long odds,” said David Spitz, president and chief operating officer of ChannelAdvisor, an e-commerce consulting company.

EBay shares hit a peak of over $58 in 2004 and made its chief executive, Meg Whitman, a Silicon Valley celebrity. But by November 2007, when she stepped down to enter politics, the telltale signs of decline had set in. Its stock was slumping. Its dominant online auction business had matured, and growth had slowed. Sellers complained about higher fees and poor support. That year, eBay wrote off $1.4 billion on its poorly conceived $2.5 billion acquisition of the calling service Skype, recording its first loss as a public company. Analysts worried that eBay had lost its quirky soul, and was abandoning the flea market auction model that had made it distinctive and dominant in online auctions. By early 2009, its stock was barely over $10, down over 80 percent from its peak.

Ms. Whitman was succeeded by a former Bain & Company managing director, John Donahoe. “One of the unique things about the Internet is a company can be a white-hot success and become a global brand and reach global scale in just a few years - that's the good news,” he told me this week. “But then somebody can turn around and do it to you. There's constant disruption. One of the first things I had to do here was face reality. EBay was getting disrupted.”

Little more than four years after taking charge, a buoyant Mr. Donahoe sounded like the chief executive of a surging start-up when he announced eBay's latest results on July 18. So thoroughly has eBay been transformed that he didn't even mention its traditional auction business. “Our multiyear effort is paying off,” he said. Profit more than doubled and revenue jumped 23 percent. “EBay is revitalized. We believe the best is yet to come.” In a stock market struggling with recession fears and the , eBay stock this week hit a six-year high.

How has eBay done it when so many others have failed?

Excitement about eBay's prospects has little to do with its traditional auction business, or even its core e-commerce operations, although its marketplace division posted solid results and had its best quarter since 2006, the company said. Most of its growth came from mobile retailing and its PayPal online payments division, a business it acquired in 2002 for what now looks like a bargain $1.5 billion.

As consumers embrace shopping on their smartphones, “mobile continues to be a game-changer,” Mr. Donahoe said. He noted that 90 million users had downloaded eBay's mobile app and that 600,000 customers made their first mobile purchase during the most recent quarter. “A woman's handbag is purchased on eBay mobile every 30 seconds,” he said. “Mobile is revolutionizing how people shop and pay.”

“It's hard to think of many companies that benefit from mobile,” Mr. Sena said. “Usually it means more competition. But clearly, eBay is one of them. EBay is offering a one-click payment solution. You don't have to type in a credit card number or PIN. It's just one click on your mobile phone.”

Mr. Spitz said he was recently stopped at a traffic light and the sun was bothering his eyes. By the time the light turned green, he had used his phone to order and pay for sunglasses. “This is what commerce anytime, anywhere means,” he said. “It's here.”