Ebay is Riding the Mobile Payments Revolution
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Investors have concrete reasons to feel optimistic about Ebay (NASDAQ: EBAY) and its reignited growth prospects. The company reported better than expected results on Wednesday, and growth in Pay Pal was particularly interesting. The race in the mobile payments industry is on, and Ebay is in a convenient position to profit from this exciting business.
Growth in revenues has been a little uninspiring for Ebay in the last years, Amazon (NASDAQ: AMZN) with its enormous scale and ultra-competitive prices stole a considerable amount of business from the auction site. Years like 2009 and 2010 saw almost no growth for Ebay while Amazon was increasing sales at more than 30% annually.
But Ebay is back with a vengeance, the company reported a 29% increase in sales and 20% growth in earnings for the last quarter. The most interesting part of that report was growth in PayPal; EBay’s payments platform showed a 32% increase in revenue on the back of a 12% increase in registered users. PayPal currently has 109.8 million registered users.
Reaching a critical mass could be a crucial success factor in mobile payments. Clients want to use payment methods which are considered safe and accepted by most merchants, while merchants will obviously feel inclined to accept those payment platforms that bring them more customers. PayPal is having a nice start from its growing user base among consumers and companies. Furthermore, PayPal is making some important inroads in the mobile payments industry via alliances with companies like Home Depot (NYSE: HD) which installed 2,000 mobile payment capabilities in stores where customers can pay by giving their phone number and a pin code to a cashier. Ebay is working with other retailers to provide mobile payment solutions to their stores via PayPal; if those efforts are successful the company could get a nice head start in the industry.
PayPal Here is a solution targeted towards small businesses which plugs a credit card reader into smart phones and also includes an application that uses the phone´s camera for processing credit cards and checks. Mobile payment processor Square has been quite successful in that segment, reaching more than 4 billion USD in payments volume annually, so PayPal is clearly going after Square with this new solution.
Ebay will of course need to face strong competition in mobile payments as companies like Google (NASDAQ: GOOG) and MasterCard (NYSE: MA) are joining forces in Google Wallet, which allows for mobile payments very quickly via an Android App. Google has a dominant market share in smart phone operating systems, and MasterCard is a household name in payments with big exposure to emerging markets. Thus competition for Ebay is expected to be tough.
On the other hand, a high level of competition is usually the norm and not the exception when business opportunities are so exciting from a middle and long term perspective. Ebay has been able to create a strong position in a business with explosive growth prospects, and investors could be looking at a very attractive opportunity.
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