eBay's Frail Recovery Shows How Far It's Fallen

At first glance, it looks like eBay (s ebay) and Amazon (s amzn) are swapping fortunes. eBay’s stock rose 11 percent the day after it posted second-quarter earnings this week, while Amazon’s stock dropped 8 percent in the wake of its own report. Amazon reported better numbers — its revenue in the latest three-month period rose 14 percent over the second quarter of 2008, to $4.65 billion, while its earnings per share declined to 32 cents from 37 cents. eBay, meanwhile, said revenue fell 5 percent to $2.1 billion and earnings came in at 25 cents a share vs. 35 cents the year before. Watching eBay shares outperform Amazon may seem odd, but it’s been going on for some time. Since the market bottomed out in early March, eBay’s stock has more than doubled while Amazon’s has risen 40 percent.

ebay vs amazon What’s going on? Is eBay really faring that much better than Amazon? Well, no — it’s just set lower expectations. Earlier this year, analysts and investors, noticing that eBay was floundering in the recession while Amazon thrived, feared CEO John Donahoe’s efforts to turn the company around were backfiring. There have since been signs of improvement, however. For example, the value of goods sold on the site in the second quarter rose for the first time since 2007.

In other words, the rally in eBay shares is due, in large part, to relief.

Gone is the eBay that Meg Whitman tried to create — a cultural phenomenon and growth machine where Skype would somehow make eBay’s auctions more useful. Under Donahoe, eBay hopes to eke out growth by selling used or refurbished goods, doesn’t plan to make any more major acquisitions, and sees Skype as simply a way to raise cash in the future. It’s resigned (or at least it appears to have) to sacrifice ambition and accept a humbler, grayer future. But at least it’s turning things around.

And while Amazon did see some disappointing media sales in its store last quarter, its larger story is still a compelling one. Its purchase of Zappos was welcomed as a shrewd, timely and modestly priced deal. The Kindle is paving the way for future e-book revenue. And the company has been patiently building a new source of revenue from cloud computing services, which could return more profits in future years.

Back in late 2005, after eBay announced it was overpaying for Skype, its market cap stood around $65 billion. Today, even after its stock has doubled in the past four months, its market cap stands at $27 billion. Meanwhile, Amazon’s market cap has gone from $19 billion in late 2005 to $37 billion today.

eBay may be on its way back, but it’s hard to imagine it returning to the glory days of earlier this decade. Amazon’s best days, on the other hand, may still lie ahead.