EBay: Wallet in the sky

With 100 million users, the online leader is set to benefit from a move toward mobile transactions.

By TheStockAdvisors May 31, 2012 12:20PM
By Glenn Rogers, Internet Wealth Builder

At the end of last year, eBay (EBAY) had more than 100 million active users around the world and the total value of the goods sold on its platform was over $60 billion -- or $2,100 every second.

Image: African-American woman shopping online (© Ariel Skelley/Blend Images/Getty Images)This global e-commerce platform has provided the company with steady cash flow since its founding and continues to do so today. But the real gem of the business and its main driver of future growth lies deeper within the company.

PayPal, the company eBay acquired in the fall of 2002, enables online transactions through secure electronic payments, something few companies were supporting in the early days of e-commerce.

eBay acquired the company because a large percentage of eBay's customers were using PayPal to complete their online transactions. It was a natural fit.

PayPal has since grown to have over 106 million registered accounts worldwide and has developed into a virtual "wallet in the sky" that will be generating 50% of eBay's total revenue next year.

It has enabled secure transactions for millions of online retailers and works with most of the major currencies and many of the minor ones around the world. But the real excitement for PayPal is just beginning.

The world is rapidly adopting mobile transactions and payments via smart phones. PayPal, with its large user base on both the buy and sell side, is well-positioned to benefit from this rapidly growing trend.

For example, PayPal is rolling out a program in 2,000 Home Depot (HD) stores to allow shoppers to pay at the register using their PayPal account with just their mobile phone number. Within the next few years, a very significant number of transactions will be handled in just this way.

But enabling transactions is only part of the story. eBay's massive consumer data base will help merchants better engage customers based on their established shopping habits.

Merchants would be alerted when a customer is in their store, initiating a range of instant personalized marketing opportunities like money saving coupons and related incentives.

This will also work online with targeted ads delivered to a customer's desktop and mobile devices.

eBay's most recent quarter was very strong. Earnings per share reached $0.55 which was ahead of estimates and 18% more than last year.

The e-retailing and auction business grew by 12% to $18 billion and fixed-price sales grew by 18%. PayPal had an excellent quarter with registered users growing by 12% and revenue growing by 32%.

Moreover, 50% of the revenues from both businesses came from outside North American, so the company offers excellent geographic diversification.

The stock looks cheap at 17.5 times anticipated earnings. That makes eBay a bargain compared to the prices being paid for Amazon, Visa, Yahoo, and others in the category.

eBay has additional elements to its business that help strengthen its relationships with the retailers.

For example, GSI Commerce, acquired by the company in 2011, develops advanced technology and marketing solutions that enable retail participants large and small to improve the customer experience and reduce costs.

The company also has a number of joint ventures and partnerships in China, Latin America, Japan, and Taiwan, to name a few. The company also owns StubHub, an online ticket business, and a piece of craigslist.org as well as Shopping.com.

Of course, eBay won't be alone in pursuing mobile payment options. Visa, MasterCard, Google, and other startups like Square are all working on platforms.

But PayPal has a good head start and will be amongst those companies that dominate the rapidly growing trend in the post-cash and now post-credit world we are moving toward. Buy eBay with a target of $48.

More from The Stock Advisors

Tags: HD


May 31, 2012 3:50PM
May 31, 2012 5:37PM
Ebay will fail, it does not help the seller, Ebay staff thinks that sellers are getting rid of the stuff in the garage and don't care about what they sell it for. The business sellers can not keep up with the costs that ebay charges and pay pal! It amounts to approximately 13 per cent each sale, inventory can not be purchased and resold for 13 per cent increase. Only garaged or attic items that are pulled out after long storage can fit their standards....and the 14 day return policy that is mandatory....I'm not even going there!
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.



Quotes delayed at least 15 min


There’s a problem getting this information right now. Please try again later.
There’s a problem getting this information right now. Please try again later.
Market index data delayed by 15 minutes

[BRIEFING.COM] The S&P 500 (-0.1%) continues hovering right below its flat line with heavily-weighted sectors like financials (-0.2%), industrials (-0.1%), and technology (-0.5%) pressuring the broader market.

On the upside, countercyclical telecom services (+0.6%) and utilities (+0.7%) sport solid gains, but the two groups carry little influence over the broader market since they represent just 5.4% of the entire S&P 500. Meanwhile, the top-weighted sector-technology-accounts ... More


There’s a problem getting this information right now. Please try again later.