eBay Reports an Outstanding Q1

Ebay (EBAY) reported another incredible quarter (see earnings release and management presentation here and the conference call transcript is here). Revenue came in at a record $2.19 billion, representing 24% Y/Y growth (only $50 million short of my estimate and a whopping $120 million more than Wall Street expectations). EPS growth was even higher at 26% Y/Y and FCF growth was higher still at 32% Y/Y. Combined with a large $1 billion buyback at a very attractive price (average of $27.24 per share), this is a fantastic start to 2008.

Marketplaces

Q1 revenue came in at $1.48 billion, representing 19% Y/Y growth.

There are strong signs Marketplaces has turned a corner. Active user growth on the eBay platform, at 1% Y/Y (or 6% Y/Y excluding China/Taiwan), finally seems to be bottoming out. And if a flat user base is generating 14% Y/Y growth in Marketplaces transaction revenues in Q1, you can imagine the opportunity if EBAY revive even a tiny portion of the massive pool of dormant users over the remainder of the year (EBAY mentioned early testing of "couponing" showing positive signs in this regard).

Equally important, non-transaction revenues (classifieds, advertising, shopping.com) continue to be on fire, with growth accelerating to 56% Y/Y in Q1. This group now accounts for 15% of Marketplaces revenue, up from 11% in Q1 last year.

Payments

Q1 revenue came in at $582 million, representing 32% Y/Y growth.

PayPal continues to be a pillar of growth for EBAY. The growth of PayPal Merchant Services, at 61% Y/Y, continues at full pace and now represents 46% of PayPal TPV. And with only 31 of the top 100 online merchants in the US offering PayPal, there is still an amazing amount of headroom left.

On-EBAY penetration rate continues its steady increase, and at 54.5%, also has plenty of room for further gains. Management mentioned making PayPal the exclusive payment alternative in Australia would be closely monitored in the context of other markets.

Communication

Q1 revenue came in at $126 million, representing 61% Y/Y growth.Skype was the only disappointing performance, in my opinion. Skype-Out minutes, where Skype derives most of its revenue, were up only 33% Y/Y. And although it’s a significant improvement over Q4, I was simply expecting more.

Very little color was given on Skype, except to say EBAY are once again going to explore integration with Marketplaces and Payments. I personally think this is just the standard official response and that it’s certainly not a priority anytime soon. A sale of Skype has been rumored for several months and, reading between the lines, is not incompatible with EBAY's report.

Disclosure: Long EBAY