eBay's Elusive German Growth

In the long term, eBay's(EBAY) growth may come from emerging markets such as China and India, but it's the near-term growth in markets like Germany that is causing more of a problem right now.

eBay CEO Meg Whitman said last week that the company expects China to become one of its biggest markets in five or 10 years. That would be nice, but this year eBay's marketplace business in China will yield only $400 million, or a little more than 1% of its total gross merchandise value last year.

And investors have this nasty habit of being short-sighted about revenue and profit figures, so for the moment, they're watching Germany much closer than China. eBay's German operations have been a drag on its overall auction and e-commerce business and Whitman and others at eBay have admitted they'd like to see growth rates improve.

eBay's German problem is about more than jump-starting one of its core markets; it's a chance to prove that the company can still manage impressive growth rates, even as it brings in more than $3 billion a year in revenue. Investors and analysts watching eBay have worried that the 10-year-old company has hit middle age already. eBay's estimated 2005 EPS is 45 times its price -- a valuation that isn't bad for a company growing at a healthy rate, but a rich one for a mature company.

Germany accounted for 22% of the total value of goods sold through eBay's marketplace last year, second only to the U.S. in size, but its revenue growth rates have been lower than most of the company's other markets. In the first quarter of 2005, eBay's Germany revenue grew 24%, but factoring out the purchase of automobile marketplace site mobile.de, revenue grew 16%. That was less than a third as fast as the 51% growth rate of eBay's international marketplace revenue.