An Amazon-eBay throwdown is coming

August 8, 2012: 7:51 AM ET

eBay's spectacular turnaround has been fueled by mobile commerce. That puts it on a collision course with Amazon.

By Don Reisinger, contributor

ebayFORTUNE -- The trouble began with the departure of a charismatic chief. After CEO Meg Whitman stepped down from her post at eBay in 2008, the online commerce giant's business seemed to sour. eBay sellers, while still reliant upon the site, grew tired of the company's penchant for raising fees. They became vocal, even trenchant, in their discontent. When the company's financial performance started to suffer, in part because of an ill-conceived, $2.5 billion acquisition of Skype, investors grew weary. The company's shares plummeted, hitting a low of about $10 in 2009.

How things have changed. By the end of that year, eBay (EBAY) was able to grow revenue to $8.7 billion, up from $8.5 billion in the previous year. And despite its troubles, it still delivered a tidy $2.4 billion profit. In 2011, eBay shocked Wall Street with an exceedingly successful year, generating $11.7 billion in income and a $3.2 billion profit. eBay's stock has swung back, as well, jumping 51% since the beginning of the year to $45.85. In the last year, eBay shares are up 56%. eBay seems to have beat the Internet curse.

So, what happened?

Blame it on the iPhone. "Mobile is a tailwind for eBay, as the medium is allowing for incremental volume with no pricing or margin degradation (which plagues online ads)," Barclays Capital (BCS) analyst Anthony DiClemente wrote recently in a research note to investors. Indeed. During June, 47% of all U.S. smartphone owners -- about 45 million people – used a shopping application on their handset, according to Nielsen. Out of those, 13 million unique users accessed eBay to buy products. Amazon (AMZN), which attracted 12 million unique users, came in second place.

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That news comes just a month after eBay reported to investors that its mobile efforts are paying off in a big way. "We now expect eBay and PayPal mobile to each transact $10 billion in volume in 2012 -- that's more than double 2011, a staggering surge in mobile shopping and payments on devices that did not exist just a few years ago," eBay president and CEO John Donahoe said last month in an earnings statement.

PayPal is surging. eBay reported last month that the service has 113.2 million active registered accounts, representing a 13% gain over the prior year. PayPal revenue was up 26% to $1.4 billion last quarter, putting it within striking distance of besting eBay's e-commerce business, which tallied $1.6 billion in revenue during the period.

Of course, eBay has been on top of the Web world before. And its competitors have their sights set on its core businesses. When it comes to consumer purchases and the mobile world, Amazon is easily eBay's largest competitor. And Amazon is hot on eBay's heels for mobile e-commerce app usage; shoppers actively use the e-retail giant's mobile application. What's more, the Amazon Marketplace allows vendors to sell their products directly to consumers. (Sometimes, those products are brand new, sometimes used.)

Amazon and eBay are gunning for the same consumer dollars. And Amazon has plenty of resources. The company last year generated a $631 million profit on $48 billion in revenue. In other words, Amazon is huge. And so far, not a single company has come close to matching it in sales or popularity.

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PayPal, meanwhile, is vital to eBay's business. But a slew of companies have designs on challenging it -- and becoming major players in the payments market. Google (GOOG), for example, already has Checkout, an online PayPal competitor, and is trying to jump on the near-field-communication trend with Google Wallet, a mobile-payment solution. (For more, read Fortune's recent Death of cash story.)

Still, analysts don't necessarily believe eBay will suffer through tough times in the coming months and years. Baird analyst Colin Sebastian, who raised his eBay price target from $45 to $47 last month, wrote in a note to investors announcing the change that the company "remains an early leader in mobile commerce and payments, while some other companies struggle to gain a foothold." Sebastian's comments followed similarly glowing remarks by Bernstein Research analyst Carlos Kirjner, who wrote in a research note last month that PayPal "has a strong and hard-to-challenge online payments franchise."

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