eBay spark needed

eBay's Q3 earnings release is out and Wall Street seems to like it, though I am not completely sure why.

The shares were up 7% on Thursday which made a pleasant change but boy has the share price got some recovery to do.

Organic revenue growth for 2007 is projected to be in the region of 17 to 21%. This is the most important figure for me. eBay is no longer the 40% growth monster it used to be. It has become a victim of its own success and growth will now be at a much more modest rate. No wonder investors have been selling in droves.

Where will the sparks come from to ignite another buying frenzy on Wall Street? Not Skype, which looks like it is not going to make its $200 million revenue target for this year. Not the auctions, which are growing at 20% and are under competitive pressure in Korea and China.

PayPal is still growing at 40% but is still only 25% of total revenues.

One unexpected positive was the acceleration of advertising revenue growth - up 44% on last year. That is impressive but it is starting from a very small base and is already well behind Skype.

eBay has a business model to die for but that is not enough to guarantee investment success over the medium term. The last 24 months of investing in eBay have taught me that. However over the long term I expect eBay to win in its battle to grow faster than ecommerce. And that means that one day my shares will show a substantial profit. But maybe not next year.