PayPal keeps on rolling as eBay posts solid fourth quarter

eBay’s chief executive John Donahoe has a plan to turn his company around — and it looks like it’s working.

eBay’s revenue rose 5 percent year over year in the fourth quarter, bolstered by increased holiday sales and strong growth in its transaction service PayPal.

The company raked in $2.5 billion in the fourth quarter last year, up from $2.4 billion in 2009. At the same time, eBay dramatically slashed its administrative costs by about 55 percent to $278 million. The company’s total operating expenses were down 21 percent while its marketing and development spending was still up — meaning the company just became more efficient compared to last year.

The company’s PayPal operations have continued very healthy growth, with revenue from PayPal jumping 22 percent to $971 million during the holiday season compared to $796 million during the fourth quarter last year. Transaction activity was up 26 percent to around $27 billion during the holiday season last year compared to the same quarter a year earlier. There were 94.4 million registered PayPal users at the end of the fourth quarter last year.

eBay began focusing on PayPal as its primary tool after Donahoe took the reigns in 2008. The company decided to copy Amazon’s online marketplace model with eBay’s “buy it now” option for most of its auctions in a move to stray a little further from its typical reliance on auctions activity.

As a result, its online auctions activity has stalled to an almost complete halt, growing only 3 percent in the fourth quarter this year compared to the same quarter a year earlier. Auctions activity still brought in a majority of eBay’s revenue, netting the company $1.5 billion.

eBay sold off its voice-over-Internet service Skype last year during the fourth quarter, leading to a write-down of around $1.8 billion. eBay still holds a 30 percent ownership of the voice service. Skype filed for an IPO in August this year. Excluding that write-down, eBay’s profit was up around 24 percent — although it seems like that was largely from Donahoe’s efforts to bring down costs rather than a dramatic increase in revenue.

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