eBay has yet to sell its turnaround to investors by Kevin Kelleher @FortuneMagazine January 17, 2012, 3:38 PM EST E-mail Tweet Facebook Google Plus Linkedin Share icons By Kevin Kelleher, contributor FORTUNE — It wasn’t the way any CEO wanted to start of a new year. eBay chief John Donahoe learned that Scott Thompson, the head of the company’s fast-growing PayPal unit, was leaving to become Yahoo’s new CEO. eBay’s stock dropped 4% on the news, and investors worried that the loss could take the wind out of a turnaround that, after years of work, was finally beginning to gain traction. Over the past four years, Donahoe has tinkered with the company’s e-commerce marketplace — steering it away from its original auction business and building it around its most active sellers — while nurturing PayPal into a online-payments service that is seeing revenue grow by about 30% a year. But the results of the turnaround have been slow to register with investors. While eBay’s EBAY stock has gained 115% over the past three years, against the Nasdaq’s 77% rise, it’s stalled more recently — gaining only 5% in the past year. On Wednesday, eBay will have another chance to show that its turnaround is starting to pick up speed, as the rise of mobile commerce and PayPal’s continued growth add to earnings. While Thomson’s departure is a loss for eBay – analysts were split over whether it was “incrementally negative” or “a material loss” — there remain a number of reasons why both eBay’s marketplace and PayPal’s payment system will deliver growth that few investors are expecting. Goldman Sachs recently put a $40 price target on eBay (it now trades near $30 a share), saying the company will easily hop over the low bar many have set for the company. Such is often the case when tech companies manage a turnaround. They inevitably take much longer than most people expect, and by the time the turnaround begins to bear fruit, many have given up hope for a strong recovery. While eBay may never return to its glory days of 2003 and 2004, when the stock more than tripled over two years, it is returning to a more moderate but encouraging rate of growth. Five years ago, eBay’s revenue was steadily growing around 25% a year. During 2009, when eBay had the chance to draw in budget-conscious shoppers, the company saw its revenue decline for three straight quarters. More recently, revenue has not only started expanding again, the growth rate is accelerating: to 32% in the third quarter of 2011, compared with 24% in the second quarter and 16% in the first. eBay is fueling much of that growth by tapping into the emerging market for mobile e-commerce. In 2011, 11% of all online purchases came from mobile devices, double the rate a year earlier, according to IBM IBM . Not only are more shoppers becoming comfortable buying from smartphones and tablets, these devices are more likely to be used internationally, where mobile connections are more easily found that landline Internet connections. But eBay’s mobile revenue has been growing at an even faster rate. The value of goods sold on eBay through mobile devices rose to $5 billion last year from $2 billion in 2010. And PayPal processed $4 billion worth of mobile payments, up from $750 billion. This year, eBay expects to see $8 billion worth of e-commerce transactions from mobile devices. While that estimate suggests a slower growth rate than 2011’s, eBay usually offers conservative estimates for mobile growth. Initially, the company estimated PayPal mobile transactions would reach $1.5 billion in 2011, but the actual figure was more than twice as large as forecast. Increasingly, eBay’s growth is coming from PayPal. Online payments make up 38% of the company’s total net revenue, but it’s growing twice as fast as marketplace revenue and is likely to become the main source of revenue over the company’s long run. Much of that growth depends on PayPal’s ability to find a key role in the future market for online payments. As Google GOOG , Facebook, Apple AAPL and others jockey for a role in mobile payments and digital wallets, PayPal’s established brand, its relationship with banks and retailers and its history of navigating complex financial laws give it a strong base to work from. PayPal still has several problems it needs to address — such as its notoriously erratic customer service — and it will need to reassure retailers that the transition to a new CEO won’t derail or slow its growth. But its growth, along with eBay’s overall turnaround, present more opportunities than threats. One thing about turnarounds that take years to pull off, once they get started they can’t easily be stopped.