eBay cashes in on PayPal as online auctions stop growing

For the first time in more than a year, eBay has not seen any significant revenue growth from its auctions. That has left PayPal, which continues to grow at a healthy rate, as the flagship revenue stream for the once-leading online auction site, according to its most recent earnings reports released today.

As online retailers like Amazon.com and others have emerged as the dominant force in online marketplaces, auctions have begun to lose some steam. Amazon passed eBay for the first time in raw traffic numbers in 2009, and it hasn’t looked back since. eBay — one of the original online auction and e-commerce sites — has since shifted its focus to its online payment system PayPal with a lot of success. Its revenue from PayPal was up 23 percent this year to $798 million compared to the same quarter last year, when it pulled in $650 million.

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Meanwhile, eBay’s auction activities have slowed to a crawl. Revenue from its auction site — which charges a fee to let users post things they’d like to sell — was up a paltry 3 percent when compared to the same quarter last year, from $1.182 billion to $1.186 billion.

The turnaround in eBay’s strategy began when John Donahoe took the reigns in 2008. eBay decided to shift its focus to PayPal and to model Amazon’s online marketplace model with eBay’s “buy it now” option for most of its auctions.

The result? eBay’s net income was up 23 percent this year to about $432 million when compared to about $350 million in the same quarter last year, and its revenue has grown steadily for the past several quarters. It’s no surprise that eBay’s most recent income growth is directly in line with its PayPal operations.

Investors were pretty satisfied with the results. Shares of eBay were up 6.9 percent to $27.42 in extended trading today.

eBay has written off Voice-over-Internet communications provider Skype as a part of its assets — but that communications arm still brought in around $170 million in this same quarter last year. Skype filed for an IPO in August this year. That filing came after eBay finalized the sale of 70 percent of the company in November 2009 to an investment consortium led by Silver Lake Partners.