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(Reuters) – EBay Inc (EBAY.O) reported better-than-expected increases in quarterly sales and profit on Wednesday, driven by growth in the e-commerce company’s Marketplaces and PayPal businesses.

EBay also edged up its 2012 forecasts, helping propel the company’s shares 7.9 percent higher to $38.69 in after-hours trading – the highest level since late 2007.

“It’s one of their better reports that I’ve seen in several years,” said Colin Sebastian, an analyst at Robert W. Baird & Co.

EBay shares have gained more than 15 percent so far this year, more than double the gain of rival Amazon.com (AMZN.O), on optimism about a growth recovery at its online Marketplaces business and an expansion of PayPal from its online roots into physical stores.

“Both PayPal and the Marketplaces were very healthy in the quarter,” Sebastian said. “It’s not every quarter that you see both doing well.”

That suggests management’s strategy of turning around its online Marketplaces while expanding PayPal is working.

“Marketplaces is improving and PayPal continues to gain market share and that’s without any contribution from the offline initiatives,” Sebastian said.

‘TURNED THE CORNER’

EBay’s online marketplaces, the largest in the world, have lagged the growth of e-commerce and Amazon.com for several years.

Under Chief Executive John Donahoe, eBay has invested a lot to improve the buying experience on the sites, partly by prodding sellers to provide more services such as free shipping and easier returns.

Donahoe said on Wednesday that these changes have paid off, announcing during a conference call with analysts that the Marketplaces business “has turned the corner.”

EBay said first-quarter gross merchandise volume on its U.S. Marketplace business was $6.37 billion, excluding vehicle sales. That was up 13 percent from a year earlier. Doug Anmuth, an analyst at J.P. Morgan, was expecting $6.13 billion in U.S. GMV, ex-autos.

EBay’s online marketplace added two million active users during the first quarter, the most in three years, Donahoe noted.

PAYPAL

PayPal’s Total Payment Volume was $34 billion in the first quarter, up 24 percent from a year earlier. J.P. Morgan’s Anmuth had forecast $33.28 billion.

PayPal’s transaction margin – a measure of the payment service’s profitability – was 65.6 percent in the first quarter, up from 64.8 percent in the previous quarter.

Chief Financial Officer Bob Swan said this was the highest margin level in five years.

EARNINGS, FORECASTS

EBay said first-quarter profit was $725 million, or 55 cents per share, compared with $619 million, or 47 cents per share, a year earlier. Revenue was $3.3 billion, up 29 percent from the same period in 2011.

EBay was expected to report earnings of 52 cents per share in the first quarter on revenue of $3.15 billion, according to Thomson Reuters I/B/E/S.

EBay forecast second-quarter profit of 53 cents to 55 cents per share and revenue of $3.25 billion to $3.35 billion. For the whole of 2012, the company expects earnings of $2.30 to $2.35 per share and revenue of $13.8 billion to $14.1 billion.

Wall Street was looking for earnings per share of 55 cents for the second quarter and $2.30 for the full year. Revenue was expected to be $3.36 billion in the second quarter and $13.85 billion for the whole of 2012.

Earlier this year, eBay forecast first-quarter earnings of 50 cents to 51 cents a share and revenue of $3.05 billion to $3.15 billion. For the whole of 2012, eBay previously forecast profit of $2.25 to $2.30 per share and revenue of $13.7 billion to $14 billion.

“They are doing a fantastic job for long-term shareholders,” said Bill Smead of Smead Capital Management, which owns eBay stock. “They consistently under-promise and over-deliver.”

EBay likely kept its full-year estimates restrained because the outlook for the economy is still uncertain, Sebastian noted.

By Alistair Barr; editing by Andre Grenon