This Growth Stock Is Firing on All Cylinders

Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

With the stock rising more than 50% over the last twelve months, eBay (NASDAQ: EBAY) has certainly delivered a fantastic year for shareholders. But investing is about the windshield, not the rearview mirror, and the big question is whether this is still a good time to buy eBay or if the best is already over for the company. So let´s take a look at some key aspects to consider.

Marketplace

Amazon (NASDAQ: AMZN) may still be the leader in online commerce when it comes to market share, but this is a high growth industry that will have enough room to comfortably accommodate more than a couple of players over the following years. eBay has implemented some remarkable improvements in its marketplace operations lately: moving away from auctions towards a system more focused on fixed price offerings, improved search, free shipping, and mobile applications capabilities have been a big plus for ebay, and the company has gained a lot of traction in that area over the last years.

Besides, Amazon and eBay are taking opposite sides when it comes to their relationship with brick and mortar retailers. Traditional retailers are feeling seriously threatened by Amazon since the online retail giant is aggressively disrupting the entire industry and generating an enormous challenge for many retailers. eBay, on the other hand, is trying to build a bridge to bring those stores into the digital era so they can avoid being left in the past by Amazon, so traditional retailers have powerful incentives to befriend EBay in this competition.

eBay is blurring the lines between the physical and virtual shopping experience, and mobile is a big part of that strategy. According to the company´s CEO John Donahoe, in more than 50% of all retail transactions the consumer accesses the web at some point, in many cases to compare prices but also when it comes to product specifications, customer reviews, etc.

The company provides comparative pricing information not only from online stores but also from local retailers. Users can either scan a barcode or use visual recognition software to identify a product, and the application will then pull up the different prices for that product. Even better, geolocation makes it possible to find out if the product is available in nearby stores.

eBay is also experimenting with same day delivery in San Francisco and New York City, companies like Best Buy, Macy', Target, and Walgreen are joining this trial in an attempt to find more ways to defend themselves from the threat that Amazon represents. Looking beyond the potential financial reward for eBay in the middle term; this service is another way in which the company can strategically become an invaluable ally for retailers.

PayPal

PayPal has emerged as a leading electronic payment method, expanding well beyond eBay’s platform. The payment method is already accepted by more than 60 of the top 100 online retailers in the U.S., and it processes more than 25% of online retail transactions in the country. The opportunities for international expansion are nothing short of amazing; the technology is becoming very popular in emerging markets, where a smartphone and a PayPal account are sometimes more accessible than a bank account or other alternatives.

eBay reported during its last earnings report that PayPal has now nearly 123 million active accounts; more than 5 million of which were added in the fourth quarter, PayPal's biggest gain in 8 years. Mobile payment volume reached nearly $14 billion in 2012, up more than 250% over the prior year, as consumers are increasingly using smart phones and tablets to pay online.

And opportunities for offline expansion are looking increasingly strong too, the company is working on a partnership with Discover Financial Services, which is estimated to launch in the second quarter of this year. The deal will provide eBay access to a network of more than 7 million merchants, while Discover will pick up more transaction volume by processing the payments for PayPal.

At a Jamba Juice location in Emeryville, California, PayPal is testing an order-ahead mobile feature. Consumers can order their smoothie in advance, choose their pickup time and then skip the line at Jamba Juice by paying via PayPal. PayPal's in-store point-of-sale solution is now available at 23 major retailers all over the US, and there is no end at sight for its growth opportunities.

Other Opportunities

eBay owns 18% of Mercado Libre (NASDAQ: MELI), the leading ecommerce platform in Latin America which has a similar business model to that of ebay. Mercado Libre has also been fostering Mercado Pago, its own payment system which is growing beyond the ecommerce platform and playing a similar role to the one PayPal plays for eBay. Ecommerce is a high growth business, and Latin America is a high growth region, so Mercado Libre has delivered sales growth above 40 % annually over the last five years on average.

In 2011 eBay acquired GSI Commerce; a company specialized in creating, developing and running online shopping sites for brick and mortar brands and retailers. This acquisition gave eBay access to more than 180 retailers including brands like Ralph Lauren and Victoria's Secret while at the same time broadening its portfolio of services and generating cost savings via synergies. Performance is being quite strong in this segment too: GSI delivered a 19% increase in same-store sales for its clients over the last quarter.

Bottom Line

eBay is firing on all cylinders; growth opportunities are aplenty and coming from multiple sources. The stock doesn´t look to expensive at a forward P/E ratio of 17.2, so placing a bid – pun intended - for this innovative growth stock looks like good idea, even after the recent run up.


acardenal has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, eBay, and MercadoLibre. The Motley Fool owns shares of Amazon.com, eBay, and MercadoLibre. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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