eBay: A Value Play to Make Today

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


Home to over 100 million active users, eBay (NASDAQ: EBAY) is the world's largest online marketplace. At the young age of 18, the company has made acquisitions and formed partnerships that have allowed for continued growth. The stock has fallen 6% year-to-date and has become one of the cheapest companies in a high-flying market.

2012 in review

On Jan. 16, eBay released fourth quarter and annual earnings for 2012. Here are highlights from those two reports:

Fourth Quarter 2012 (year-over-year comparison):

  • Earnings per share increased 16.7% to $0.70
  • Revenue increased 18% to $4.0 billion
  • U.S. gross merchandise volume increased 19%

Full Year 2012 (compared to full year 2011):

  • Earnings per share increased 16.3% to $2.36
  • Revenue increased 21% to $14.1 billion
  • Recorded over $175 billion in commerce volume, up 18%

As you can see, 2012 was a great year for eBay. The $175 billion in commerce volume, which is the total commerce and payment volume across all business units, far exceeded expectations. The majority of growth occurred in the fourth quarter and has carried over in to 2013.

Online & mobile payments

Management said it best when it stated, "Mobile continues to rewrite the commerce playbook." eBay's mobile payments exceeded $13 billion in 2012, more than double the volume of 2011. PayPal was even more impressive, with $14 billion in mobile payment volume, more than tripling the prior year. Management expects both units to reach $20 billion in 2013. 

PayPal, who was acquired by eBay in 2002, has become one of the main catalysts of growth. It currently has about 123 million active users, with 6 million of those being added in the fourth quarter. Check out these key statistics from 2012:

  • Active accounts growth of 15%
  • Total payment volume increased 24%
  • Revenue growth of 24%
  • Mobile payment volume increased over 250% to $14 billion

In-store payments

Over the last several months, PayPal has been working diligently to improve its offline presence. It recently reached a deal with Discover Financial (NYSE: DFS) to allow consumers to pay for products in-store using their PayPal accounts at Discover merchant locations. This deal gives PayPal access to millions of merchants nationwide and gives customers a speedy checkout option.

Discover, a direct banking and payment solutions provider, is one of the most recognizable brands in the United States. The cost of this deal is minimal to both companies, as it will not require any new software for merchants. The President of Discover Payment Services said, "This initiative will result in real change and innovation for the industry by bringing new technologies to the point of sale that benefits merchants and PayPal customers." I believe both PayPal and Discover will experience substantial payment growth from this partnership.

Strategic partnerships

In 2001, eBay partnered up with MercadoLibre (NASDAQ: MELI) to expand its reach to include Latin America. In the deal, eBay gave up its Brazilian e-commerce operations and shared the practices that have made it so successful. In return, it received a 19.5% ownership stake in MercadoLibre. 

Sales took off following the agreement, making MercadoLibre one of the most powerful companies in Latin America. With an identical platform and website layout, the eBay influence is clear to this day. In 2007, MercadoLibre went public at just $18 per share. Shares have since soared over 425% to $94.85. MercadoLibre's continued success will allow eBay to sit back and collect on this investment. 

Current expectations

For the full year 2013, eBay expects to earn about $2.73 per share on revenue of around $16.25 billion. This would represent earnings growth of 15.7% and revenue growth of 15.5%. These are incredible rates and are expected only to get stronger going in to 2014. 

Stock snapshot

As of the market close on March 18, eBay is trading at $50.10, just 21.2 times earnings and 18.4 times 2013 earnings. The industry average for price-to-earnings sits right around 28 today, meaning eBay is vastly undervalued. eBay is 12.5% below its 52-week high of $57.17 reached in February, and could easily push back towards this level. 

The Foolish bottom line

At current levels, eBay is an amazing value play and should be bought. It has underperformed the market by a large margin so far, but I do not think this will be the case by the end of the year. This is a long-term investment. eBay is a force to be reckoned with. 

<img src="http://g.fool.com/editorial/images/24803/screen-shot-2013-03-18-at-41026-pm_large.png" />

Joseph Solitro owns shares of eBay. The Motley Fool recommends eBay and MercadoLibre. The Motley Fool owns shares of 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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