Is eBay an eBuy Here?
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
So eBay (NASDAQ: EBAY) finally teamed up with a credit card company, Discover (NYSE: DFS). The news helped raise Discover’s shares by 4% while eBay increased only 2.86%. In my opinion, this is a bigger game changer for eBay than Discover as 70 million stores that accept Discover can now accept PayPal.
eBay has been somewhat of a stealth play as many investors weren’t aware that PayPal has eclipsed the rest of eBay’s business. eBay has a P/E of only 16.53; and hit a 52-week high on the Discover news, which signaled management’s commitment to push PayPal to become the dominant mobile payment system. It recently partnered with McDonald’s (NYSE: MCD) to offer PayPal at 30 stores in France for a trial run and a likely rollout in the U.S., a real win-win for both. Oui, you can use Le SmartPhone to buy a McBaguette and wait in the ‘plus vite’ line. Besides McDonald’s, eBay has also signed on 14 other major retailers—including Home Depot.
eBay is up 60% in the past 52 weeks with quarterly earnings growth of 144.50% year over year. Institutions love PayPal and own 83% of the float with 10% being held by insiders. This escaped my attention because I underestimated the juggernaut that is PayPal. eBay is less a competitor to Amazon these days as it is to the credit card companies. eBay has more debt than Motley Fool generally tolerates a ratio of 1.95; as opposed to the upper limit of 1.50. PayPal ownership includes director Pierre M. Omidyar who owns 131,388,408 shares. He could have bought a lot of McBaguettes with that.
The downside risk for eBay is their PayPal moat, being compromised by Wal-Mart, Target and Best Buy, actually starting their own mobile payment consortium--Merchant Customer Exchange. Also, privately held Square is partnering with Starbucks for mobile payments while having a small business friendly strategy. In fact, the August 27 issue of Time featured tech reporter Harry McCracken using only his smart phone with Square and Google Wallet to pay for everything for one week. He paid for liquor at an upscale store and a chai beverage from a street cart with Square. Both transactions went smoothly and the chai guy gave anecdotal reportage that his customers love paying with Square. Unfortunately 5 out of 6 Google Wallet transactions were problematic and even left McCracken beerless at a baseball game. Oh, the humanity!
Aside from competition another more intangible risk is possible pushback from consumers who will reject a new way for companies to collect info on their shopping habits. The same Time issue also addresses how government, law enforcement and retailers are using mobile phones to collect an astonishing amount of personal information. eBay will have to periodically reassure users that this info is secure especially now that they’ve hooked up with Discover.
As for the auction sites and Half.com and the rest Amazon.com (NASDAQ: AMZN) is continuing to take share with its Fulfillment by Amazon program for serious and professional sellers. Small sellers are increasing going to Craigslist and Etsy as well as multitudinous internet sites that auction or sell with fewer fees.
Ebay’s future is PayPal and it is going gangbusters. If they can sign up Visa and MasterCard then eBay could literally double. While this had been under my radar; I now intend to keep a real close eye on eBay now and you should too.
leglamp has no positions in the stocks mentioned above. The Motley Fool owns shares of Amazon.com and McDonald's. Motley Fool newsletter services recommend Amazon.com, eBay, and McDonald's. 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.If you have questions about this post or the Fool’s blog network, click here for information.
