Here’s Why eBay Will Be a Beast in 2013

Meena 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 one of the largest online retailers in the world and is seeing positive performance from a turnaround in its core businesses. Both its marketplace and payments segment sales have managed to grow sequentially each of the last eight quarters. Driving long-term growth should be momentum in the payments arena and a recent agreement with Discover. eBay saw Steven Cohen and SAC Capital up their stake over 500% last quarter (check out Steven Cohen's big bets).

Mobile payments volume continues to grow strongly, with eBay stating that aggregate totals went from $750 million in 2010 to $4 billion in 2011, and are currently expected to jump to $10 billion in 2012. One of eBay's biggest milestones in the mobile payments sector was its agreement with Discover Networks, which has agreed to accept PayPal Cards on Discover machines, covering more than 7 million retail outlets across the U.S.

eBay is embracing mobile in more ways than one, with an early start that has made it one of the leading players. eBay has been introducing useful mobile apps and has managed to grew mobile revenues from $2 billion in 2010 to $5 billion in 2011. One of the big benefits to eBay's mobile auctions app is that it has managed to push up auction rates.

From a valuation standpoint, eBay is still better priced than top competitor Amazon; eBay trades well below Amazon at 17x earnings, compared to Amazon's 3000x P/E. Shares also trade below Liberty Interactive's 19x P/E, despite the fact that growth prospects are generally more robust.

Amazon.com (NASDAQ: AMZN), the e-commerce powerhouse, is expected to see sales up almost 30% in both 2012 and 2013. This comes as the tech company continues to take market share from conventional retailers, but also as it looks for more ways to sell its products, including offering its Kindle tablet at cost in an effort to get the device in as many hands as possible. Amazon also has its Prime offering that further encourages customers to buy more often. From an investing point of view, the big downside to Amazon is its valuation, trading at a trailing P/E in excess of 3000x and nearly 100x forward earnings estimates.

What about the rest of eBay's tech peers?

Google (NASDAQ: GOOG) is the leader in the search market, being host to over 65% of the searches in the U.S. Google recently announced plans to sell off its Motorola Home unit to Arris for $2.3 billion, which is one of the many steps the search giant plans to undertake in an effort to restructure its Motorola Mobility acquisition. The continued losses in the Motorola unit in part led to Google's 3Q earnings miss by 15%. Billionaire George Soros' was one of Google's biggest fans after adding the stock to his portfolio last quarter (check out George Soros' new picks).

AOL (NYSE: AOL) has transitioned into a media company offering a wide range of online content. Despite this, AOL still operates one of the largest Internet subscription access services in the U.S., giving it a tremendous cross-selling opportunity. AOL has some of the more interesting growth prospects of all the stocks listed, where its 5-year EPS annual growth rate is 115%. Couple this with the tech company's 3.0x P/E and its PEG of 0.01, AOL is undoubtedly a 'growth at a reasonable price' opportunity.

Last but certainly not least, Microsoft (NASDAQ: MSFT) is a diversified products and services company with operations in mobile, PC, search and tablets. Revenues are expected to be up 9% in FY2013 and 7% in FY 2014 thanks in part to new Windows software, Office and Surface tablet releases. We continue to sing Microsoft's praises, which pays investors a 3.4% dividend yield and trades with a PEG of close to 1.0. We believe the tech giant will continue to perform well given its diverse product portfolio that provides recurring revenue streams, but we also like its efforts to expand into tablets and mobile, the latter via a partnership with Nokia. David Einhorn was a big-name investor in Microsoft last quarter (see David Einhorn's newest picks).

In short, we believe that eBay, in part being powered by PayPal, will continue to excel in the future and presents investors with a robust investment opportunity.


This article is written by Marshall Hargrave and edited by Jake Mann. Insider Monkey's Editor-in-Chief is Meena Krishnamsetty. Meena has long positions in GOOG and MSFT. The Motley Fool owns shares of Amazon.com, Google, and Microsoft. Motley Fool newsletter services recommend Amazon.com, eBay, Google, and Microsoft. 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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