Shares of eBay ( EBAY) continued to rally sharply Thursday after the company beat Wall Street expectations for its fourth-quarter results and showed that growth in its core business was reaccelerating.

The stock was recently up $2.40, or 8%, to $32.40.

Late Wednesday, the company reported earnings before items of 31 cents a share on revenue of $1.7 billion; analysts surveyed by Thomson Financial forecast earnings of 28 cents a share on revenue of $1.67 billion.

But perhaps most important, eBay reported that the momentum in its core business was back. Growth in its Marketplace business grew at 24% in the latest quarter, compared with 22% in the third quarter. The company's U.S. gross merchandise volume -- a closely watched metric used to gauge the health of its business -- also increased to 14% year over year, up from 13% from the quarter before.

Those numbers eased fears that eBay's bread-and-butter business was slipping beyond the company's control as a result of shifting consumer purchasing behavior on the Internet. The theory was that rapid growth of search engines such as Google ( GOOG) may make it unnecessary to visit particular e-commerce sites, allowing users to zig-zag the Internet in search of items instead, boosting the chances that companies such as eBay would be rendered obsolete.

"eBay reported a good quarter and an excellent quarter relative to diminishing expectations," wrote Stifel Nicolaus analyst Scott Devitt in a note to clients on Thursday. "The fear entering results was that listings growth in the quarter was trending below expectations and that conversion rates may not make up the difference, despite a fee adjustment late in the third quarter to do just that." Stifel Nicolaus makes a market in eBay shares.

Instead, eBay CEO Meg Whitman suggested that signs of the slowing core business could instead be attributed to a change in incentives that eBay had kicked off in its marketplace at the beginning of the year; however, the company responded with countermeasures later in the year. "The changes have started to show results and are having exactly the desired effects we intended," Whitman said in an interview.

As fears of eBay's obsolescence cleared, investors found themselves looking at one of the cheapest stocks in the Internet sector -- one that had failed to hold its ground in recent Internet sector rallies.

Even in the wake of the recent rally, eBay is still down about 25% from the $43.45 it was trading at a year ago, and it trades at only about 22 times forward earnings. Online retailer Amazon.com ( AMZN) trades at about 54 times forward earnings.

With solid fourth-quarter results, strong revenue per listing numbers and raised-but-very-achievable guidance for 2007, "we believe sentiment on the stock will improve given less uncertainty about the health of eBay's core business," wrote Merrill Lynch analyst Justin Post. Merrill Lunch has investment banking relationships with eBay.

But despite the immediate euphoria that stemmed in part from low expectations to begin with, eBay continues to face threats from a rapidly evolving Internet. While Google's recently launched Checkout service has yet to pose a threat to eBay -- in fact, Whitman speculated that it might have actually helped eBay since the attention showered on a high-profile newcomer often increases the profile of a market leader -- this could change quickly.

Checkout is backed by the muscle of Google, a company that continues to play an increasingly central role to how consumers navigate the Internet and one that has the resources to keep fueling Checkout until the service reaches a critical mass.

eBay continues to hold onto many great assets, including some of the most recognized brands on the Internet. But the current quarter doesn't get eBay out of the woods. It simply buys the company more time to build on its strengths.

Whitman, for her part, seems well aware of this. Asked whether the reacceleration of growth in eBay's core business laid to waste the idea that the Internet was changing beyond eBay's basic approach, she replied only that "the great companies are those that can change and evolve in this competitive landscape. The Internet has changed, and I think we have changed in response to that."