eBay: Driven by Mobile, Near All-time Highs

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

EBay (NASDAQ: EBAY) is currently trading near its all-time high on its earnings announcement. EBay has appreciated by nearly 6% in 2013, on the back of staggering 59% returns in 2012. The global commerce platform functions across three segments: Marketplaces, Payments and GSI Commerce (GSI). The revenues have grown more than 21% from 2011 to reach a staggering $14.07 billion, and the EPS has grown by nearly 16% to $2.36. On the cash flow front, it has raked up a mammoth $2.6 billion of free cash flow, up from the $2.3 billion it generated in 2011. These huge cash flows into the company have left eBay sitting on a gigantic cash hoard of $11.5 billion.

Marketplaces Supposedly Plateaued Out

Marketplace contributes slightly more than half of eBay’s total revenues, amounting to $7.4 billion, with mobile commerce volumes topping $13 billion for 2012. It has also added more than 12 million customers in 2012, taking the total tally to 112.3 million active users. Marketplace also has a high segment margin of 41% up from 40% in 2011. Marketplace is strong across all geographies it operates in, and is driven by investments in innovations to enhance the buyer and seller experience.

The company’s mobile penetration has helped it maintain its aggressive growth rate and remain at the top of the altering retail horizon over the coming years. One in every three global purchases on eBay has been through a mobile device, driven by the growing popularity of mobile devices as Internet access points.

PayPal the Growth Driver

PayPal accounts for majority of the remaining revenues of $5.57 billion, with Total Payment Volume topping $125 billion. Here again mobile payments have raked in a considerable $14 billion. It has also added more than 16.4 million accounts in 2012, taking the total tally to 122.7 million active accounts. The net number of payments has increased to 691 million transactions, with a segment margin of nearly 24%.

PayPal continues to grow strongly with an increasing focus on simplifying and improving customer experience. The division appears to have grown out of its dependence on eBay with TPV on eBay constituting less than 32% of the overall TPV.

GSI has been performing in line with expectations, continuing to invest in technology and build its client portfolio while investing for the long-term, with a special focus on delivering next generation technology and commerce solutions to a much larger market.

Guidance

  • Revenue expected to grow to over $16 billion, at a growth rate of 15%
  • EPS expected to top $2.7, at a similar growth rate
  • Free cash flow to grow at a much faster 23% to $3.2 billion

Valuation

The valuations seem very expensive with the stock currently trading at a trailing P/E of 28 and a forward P/E of 20, both of which may not inspire confidence in its lofty valuation levels. The nearest competitors to eBay would be Amazon (NASDAQ: AMZN) and Google (NASDAQ: GOOG), and both those stock are trading at a much higher valuation than eBay. Amazon trades at a P/E upwards of 3,000, and Google trades at 22 times its trailing earnings. But historically eBay has always traded at high P/Es, and if its 2012 performance is anything to go by, investors can expect the performance to continue in 2013.

The return on invested capital (ROIC) is also at a high 22%. EBay has also instituted a share repurchase program to cover for the employee stock options and has repurchased 5.2 million shares for about $256 million, and this is expected to continue into 2013.

Conclusion

Twenty two out of thirty four analysts following the stock have recommended a BUY or OUTPERFORM rating, and we concur with the opinion that it is one profoundly strong stock whose valuations currently look a bit steep. It would be advisable to buy the stock on lows and accumulate the stock as it is an exploding business especially on the mobile front.


StockRiters.com has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, eBay, and Google. The Motley Fool owns shares of Amazon.com, eBay, and Google. 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!

blog comments powered by Disqus

Compare Brokers

Fool Disclosure