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eBay (NASDAQ:EBAY) reported its earnings for Q2 2012 Wednesday. It was a great quarter with revenue increasing to $3.4 billion, up 23% year over year, and net profit increasing to $730 million, up 16% year over year. eBay’s growth this quarter was driven primarily by PayPal as its payments business saw net revenue grow by 26% year over year. Revenue growth for Marketplaces, its core e-commerce business, was around 9%. eBay competes primarily with Google (NASDAQ:GOOG), Square, Intuit GoPayment, and other competitors in the payments space, and Amazon (NASDAQ:AMZN) in e-commerce.

PayPal: eBay's Growth Engine

PayPal saw its total payment volume increase 20% year over year to $34.5 billion, driven primarily by increased penetration on eBay as well as continued merchant and consumer adoption and strong growth in Bill Me Later. Its registered user base grew to 113.2 million. We expect the total number of accounts to reach nearly 121 million by the end of 2012.

eBay announced that it will continue to focus on the mobile payments space and international markets to drive PayPal’s growth. The company announced a joint venture with SoftBank in Japan, extending its global expansion strategy for small business payment solution PayPal Here. Sixteen large brand-name U.S. retailers have announced their intent to work with PayPal on point of sale initiatives. eBay also announced general availability of PayPal Here on iPhone and Android to any merchant in the U.S. and Hong Kong who applies for the same.

Marketplaces

Though Marketplaces still contribute to a majority of eBay’s total revenue, it has been shadowed by PayPal’s blinding pace of growth. eBay’s total gross merchandize volume including vehicles increased to more than$18 billion, growing around 7% year over year. As slowing growth in this segment has been a concern for many investors, eBay’s solid growth reinforced Its mobile apps have also been instrumental in driving sales on the platform. eBay expects to generate $8 billion in mobile transaction volume in 2012.

We expect eBay to continue to see a steady growth in the merchandize sold on its Marketplaces. PayPal accounts around 30%, while Marketplaces account for around 51% of eBay’s overall value. We are in the process of updating our estimates.

Disclosure: No positions.

Source: eBay Earnings Impress On Marketplaces Growth, PayPal's Surge