eBay -- Buy It Now?

AnnaLisa 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)  may be a buy, especially before the holidays, now that it has a three-pronged strategy for both PayPal and the online merchandise site. eBay is optimizing PayPal with price matching for the holidays, empahsizing the Buy It Now aspect of the online site, and reaching out to retailers with special apps. What's even better is that these strategies drive traffic back and forth between the eBay auction site and the mobile PayPal platform.

How These Holiday Strategies Work

To illustrate the synergies of their new strategies CEO John Donahoe displayed a Black Friday app they developed for Macy's (NYSE: M). So, let's say the shopper sees something on the app they're interested in and speeds off to Macy's and pays for it with Pay Pal. Or, alternatively they see something at Macy's, checks out the Buy It Now price on eBay and buys said item on eBay and still pays for it with PayPal. A win-win for Macy's and eBay (maybe a little slanted toward eBay though).

Another strategy just in time for the holidays is their price matching policy, a very popular retail gimmick this year, but the strategy works like most of the others: pay for an item with PayPal (even an eBay Buy It Now item), find a lower price within 30 days, send your PayPal receipt and ad by mail and receive a credit to the PayPal Account for $250 per item, up to $1,000 per customer until the end of the year. So, even if you do buy something at Macy's on the Black Friday app you could still get the price matching if you paid for it with PayPal.

This is really not a "Hail Mary" strategy, as eBay will likely gain new customers for PayPal and excite current customers once again as well as (and this is possibly the most important point) getting customers familiar and comfortable with using the PayPal service. As lazy as most people are, not everyone will follow through with fulfillment of the price matching requirements so this promotion going forward should pay off for PayPal.

Google;s (NASDAQ: GOOG) Google Wallet is being left behind in the dust by these eBay specials. But Google has plenty of other irons in the fire as it figures out exactly how mobile payment got away from them.

The Holidays Online

Ebay is moving away from online auctions -- and it's about time. With so many bidding war sites out there "Get an iPad for $20!! A sixty inch TV for $200!!" auction exhaustion was setting in. Finally, they cottoned on to the strategy Amazon.com (NASDAQ: AMZN) uses -- just list the price the seller wants and be done with it. This is a society with a gratification delay deficit, among other things. "Buy it Now!" is the watchword and especially important for holiday online shoppers that want a deal but need it fast.

Moving The Needle

Do all these strategies move the needle for eBay? I think they already have. After years of tinkering to optimize mobile, eBay is just beginning to reap the fruits. Creating an app for Macy's is genius as it gives retailers added reasons to adopt PayPal, even embrace it. With Home Depot and Discover on board, and more merchants coming on all the time, etailer eBay is offering an olive branch to retailers. The Buy it Now also seems to be working.

At a 16.30 P/E eBay is cheaper than rivals Google and Amazon and all corporate governance risks are low. Return on equity at 21.28% and a 28.52% profit margin are attractive, too. Their total debt is half of total cash. Still, Amazon will be a formidable competitor breathing down their neck, even with its 2,694.17 P/E. Amazon CEO Jeff Bezos has often said they are thinking of the future but the latest quarterly loss reported on October 25 was worse than analysts expected with a loss of $0.23 per share.

Founder of eBay, Pierre Omidyar, still owns 121,788,408 shares. With eBay at a market cap of $61.76 billion it is considerably smaller than rivals Google and Amazon but it also has the smallest P/E as Google's is 20.78. eBay's Q2 earnings on October 18 reported revenues from both their operating segments, Marketplaces, the e-tail side and Payments, the PayPal side. The PayPal revenues showed 20% growth year over year while Marketplaces showed 18% growth.

Pay Up For PayPal?

PayPal is the growth driver for eBay  and all eBay has to do is keep the e-commerce site running smoothly and build up PayPal. The last earnings call they predicted revenues for PayPal to throw off $10 billion in 2012 compared to $2 billion just two short years ago helping them generate almost twice the free cash flow of last year. With a small short interest, insider conviction, and buying back shares eBay keeps surprising the naysayers and analysts. Yes, you can buy it now as a holiday present for yourself and add to your position.

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