This Online Retailer Looks Good
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), the California-based online retailing company and payments leader, had a stellar 2012. eBay’s revenue jumped to $14.1 billion in 2012, an increase of 21% over the previous year. In my opinion, the company can continue its string of amazing performances going forward. Let's see why.
Expansion of PayPal
In accordance with its plan to expand PayPal, eBay is partnering with Discover Financial Services and according to the deal, PayPal will be accepted as a payment option in almost 2 million retail stores that already accept Discover credit cards. This arrangement is expected to be officially launched on April 19.
PayPal, which contributes about 40% to eBay’s revenue, is crucial for eBay and its expansion is essential for the growth of eBay. Since physical payments are a bigger market than online transactions, this expansion could produce long-term growth for PayPal.
PayPal’s strategy with this deal is to give U.S. shoppers an alternate mode of payment, and reduce their habit of swiping credit or debit cards in stores. For this strategy to succeed, PayPal needs to convince customers that a single digital wallet or card like PayPal that links to all their other cards is easier to operate than swiping multiple cards in stores. PayPal will be releasing a smartphone app that will make it simpler for customers to operate.
eBay banking on commerce revolution
eBay has outlined its three-year growth strategies to use mobile technologies to drive business and growth. eBay is banking on a mobile led “commerce revolution” to drive strong growth in its Marketplaces, PayPal, and GSI Commerce businesses.
Commenting on the commerce revolution, eBay President and CEO, John Donahoe, said "Technology is creating a new web-enabled retail interface, a new seamless, multiscreen commerce experience that connects consumers anytime, anywhere. This will expand shopping beyond conventional store environments and e-commerce sites. How we shop is being transformed, and eBay intends to be a leader in this new commerce world."
eBay expects to enable $300 billion of global commerce by 2015 as compared to $175 billion in 2012. eBay is also planning to expand into emerging markets, particularly the BRIC (Brazil, India, Russia, and China) countries.
eBay reported good financials for the year 2012. Revenue increased 21% to $14.1 billion in 2012. Non-GAAP net income for 2012 was $3.1 billion, an increase of 16% over the previous year. The net income per diluted share was $2.36. Talking about the segments, PayPal's mobile payment volume reached $14 billion in 2012, up more than 250% over 2011.
This growth is attributed to the increase in the number of consumers using smartphones and tablets to pay online. Revenue for the fourth quarter 2012 increased to $4 billion, an increase of 18% over the same period of 2011.
eBay’s stock is strong and trading around $57. The stock is trading near its 52-week high of $57.26. The stock has returned about 56% over the past 12 months. The spectacular growth of the stock can be attributed to the solid financial performance of eBay in 2012.
Comparison with competitors
When compared with its competitors, Amazon.com (NASDAQ: AMZN) and Google (NASDAQ: GOOG), eBay has shown a better performance as the company's profit margins and capital return metric are above the peer averages. eBay’s operating margin of 0.21 ttm is better than Amazon’s 0.01 ttm. eBay’s EBITDA is also better than that of Amazon for the previous year.
In Payments, eBay competes with Google, Square, Intuit GoPayment, etc. Amazon is the major competitor in the e-commerce domain.
Competing with PayPal, Square is a mobile payments start-up which is used by more than 300,000 merchants. Last year, Square signed a deal with Starbucks. PayPal is banking on its new smartphone app in order to drive growth.
Amazon provides mobile payment service through Amazon MPS. Amazon MPS is optimized for different mobile phones, enabling customers to make payments conveniently from any mobile device.
Google provides mobile payment processing service through Google Wallet. Google Wallet enables users to store debit cards, credit cards, offers, etc. on their Android phones. It uses near field communication (NFC) to make secure payments by tapping the phone on any PayPass-enabled terminal at checkout. Google Wallet replaced Google Checkout, as it competes directly with PayPal.
eBay is growing strongly. Its expansion into emerging markets as well as the growth in PayPal’s revenue due to greater smartphone penetration will drive its growth. PayPal’s growth will be driven by expansion through smartphone apps. eBay expects revenue to grow over 50% to $21.5 billion in 2015, up from $14.1 billion in 2012. Thus, the outlook for eBay is positive.
Shas Dey 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!