EBay becomes an attractive financial stock
The auction business is on the back burner. Now the company is all about PayPal, and its recent weakness is creating an opportunity to pick up shares.
I'm going to use the big post-earnings report drop to pick up shares of my favorite financial stock, eBay (EBAY). The stock fell 5.5% the day after it announced earnings that beat Wall Street projections by a penny. But the company then guided second quarter and 2013 revenue below consensus expectations.
The lower guidance doesn't bother me much. EBay's revenue from its online marketplace and from its PayPal transaction service is sensitive to economic growth. In lowering its guidance the company pointed to the slowdown in the U.K. and eurozone economies. That seems like a reasonable explanation, especially since the new revenue guidance is only a drop from the Wall Street consensus of $3.96 billion in second quarter to $3.8 billion to $3.9 billion.
What attracts me to the stock -- and what makes eBay a financial stock -- is the growth in the PayPal transaction service and eBay's ability to grow PayPal on mobile platforms. As recent results from Yahoo (YHOO) and Google (GOOG) show, the transition to a mobile-centric world from the older desktop model isn't easy. PayPal seems to have a real chance to be one of the companies to actually profit from the shift.
PayPal processed $145 billion transactions in 2012 -- that's about 15% of the total $1 trillion in electronic commerce. (Total net payment volume grew by 21% in the first quarter.) PayPal's goal isn't just to gain a bigger share of that growing stream of electronic commerce, but also to build a platform for transactions in the larger $1 trillion retail transaction market. With its 128 million users -- up 5 million in the first quarter of 2013 -- and its reputation for safety and security I think PayPal has the potential to capture a big chunk of the next big market for financial transactions -- those conducted over smartphones. The company has forecast annual revenue growth at PayPal of better than 20% a year.
None of this would matter much if eBay's marketplace, the company's original business, were still foundering. But eBay has turned that around and is in the process of building it from a bidding site for stuff from the attic into a competitor to Amazon.com (AMZN). Competing with Amazon is a huge challenge, obviously, but eBay does have the advantage that many retailers would like to do their electronic business on a site that doesn't compete with them. What eBay calls its marketplace business saw revenue climb 13% in the quarter and the addition of 3.9 million active users, a 13% increase. Gross merchandise volume, excluding vehicles, grew by 13% to $18 billion.
I'm adding shares of eBay to Jubak's Picks today. I'd calculate a one-year target price of $65 a share for eBay. The shares closed at $51.63 on April 22.
"WASHINGTON (AP) - Tax-free shopping on the Internet could be in jeopardy under a bill making its way through the Senate. The bill would empower states to require online retailers to collect state and local sales taxes for purchases made over the Internet. The sales taxes would be sent to the states where a shopper lives. Under current law, states can only require stores to collect sales taxes if the store has a physical presence in the state. As a result, many online sales are essentially tax-free, giving Internet retailers a big advantage over brick-and-mortar stores. The Senate voted 74 to 20 Monday to take up the bill. If that level of support continues, the Senate could pass the bill as early as this week. Supporters say the bill is about fairness for businesses and lost revenue for states. Opponents say it would impose complicated regulations on retailers and doesn't have enough protections for small businesses. Businesses with less than $1 million a year in online sales would be exempt."
The last sentence is the most important one... it excludes small businesses. I pay sales tax when I buy stuff and I pay it for my in-state customers when I sell something to them. I do it because I am for my state's balanced economics. E-Bay is deluged by sudden competition for all of the platform entities with big boxes in every state in every mall in every plaza and corrupt machines like Amazon that cater to the anti-tax crowd. E-Bay is a network of small businesses. Any big box competing as an online enterprise too is hurting America. If Kohls Target Wal-Mart etc... want an online presence they should pay the Sales Tax or pass it on to customers because they exist in every state. Close stores if you want to get around the tax. The same goes for "free shipping". Is it? Investigators are finding Amazon sellers who doctor the same label for re-use to lower costs. That's crime. There is a cost to do business. Much of that was compromised with importing cheap knock-offs. The line has to be drawn somewhere. Pay TAX big boxes, leave E-Bay's small business entrepreneurs alone.
You jest, of course ...
The ugly reality for consumers dealing with the clunky, manipulative, unscrupulous and atrophying eBay/PayPal complex ...
"eBay-Facilitated Shill Bidding Fraud on eBay Auctions: Case Study #5" ...
And the ugly reality for consumers, particularly payees, dealing with the clunky, unscrupulous PayPal ...
"The auction business is on the back burner. Now the company is all about PayPal, and its recent weakness is creating an opportunity to pick up shares."
Since you are a geezer, Jim... I just thought I'd correct you. Auctions are still around but people want to find exactly what they are looking for, assure all the pertinent facts about it and make purchase and the payment immediately. They want it shipped promptly and for it to arrive timely. These are not attributes of the old Flea Market bumpkins that hucked on E-Bay. It's an incredible incubator for small business to get their entreprenurial legs without severe obligation and tweak it until stable enough to go pro with. In the old days... 1499 out of every 1500 small businesses failed in the first year. Now, instead of failing, they might get an education on pricing margins, costs of doing business and basic bookkeeping, but they don't generally fail. Auctions are for clueless people who leave it to Fate and generally yield below grade profits. You get out what you put into it.
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