Buy or Sell eBay Forward

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) has finally come up with a genius program for the auction division that will appeal to anyone who doesn't want to star on "Hoarders." One simply signs up for the Goodwill "Sell It Forward" program and fill your prepaid mailers with your gently used junk. If eBay sells it for over $10 you get half and Goodwill gets the rest. If it doesn't sell you get the tax deductible receipt. OMG clutter solved!

Whatever took them so long to come up with this idea? So far it's only available in a few California counties but eBay plans to roll it out nationwide if it pays off as planned.

So what's the big deal?

For the majority of Americans who do not have the time (nor the inclination) to photograph, write copy, upload, wrap, and ship stuff to sell on eBay just for a few dollars this is an inspired way to reach a new market: us lazy and slatternly acquirers. We'd like to make some money if it's worth anything but we don't want the hassle. We may be slobs, but we have good hearts and if Goodwill can use it, then fine.

This is not only great for Goodwill, but eBay's auction division has been underperforming the PayPal division for some time. Most of the bull case for eBay has centered around the success of PayPal, especially PayPal as a mobile wallet.

Over the holidays eBay had several promotions connected with PayPal to generate cross-channel income. A partnership with Discover Financial Services was also in place. PayPal rival Visa (NYSE: V) may see some share erode as the mobile wallet scene increasingly is ruled by eBay.

EBay was trading 10% off 52 week highs until its analyst day on March 28 when the stock rose 4% after positive three year forward looking numbers were presented. According to CEO John Donahoe the company expects GSI e-Commerce and PayPal to almost double global payments to $300 billion by 2015 from the $175 billion of 2012.

That's all well and good but what about the 50-60% of revenues from Marketplaces, the auction site? Revenues haven't kept up with the phenomenal growth of PayPal as eBay power sellers migrate to sites like rival Amazon (NASDAQ: AMZN) with their streamlined Fulfillment By Amazon program and privately held specialty sales and auction sites including Etsy and Craigslist.

Overseas competitor Alibaba announced last summer they were outselling both eBay and Amazon. This may have been a catalyst for a partnership between eBay and, a luxury e-tail site in China forged in November.

Overall numbers

At the analyst day, Donahoe said he expects over 50% revenue growth through 2015 with Marketplaces still making up half of revenues. Marketplaces is expected to grow by 14% but PayPal will grow by 22% as announced.

EBay was upgraded by Canaccord Genuity with a revised price target of $67.00 on April 1 and the stock rose 3.50% intraday. Most of the upgrade was credited to optimism over PayPal's potential with an expanded addressable market. The P/E after these stock price rises is 28.21. The PEG is 1.35.

Before eBay reported on January 16 the P/E was at 18.33 and the share price had already appreciated 75%.

Making Marketplaces matter

Making Marketplaces more relevant has been the real challenge for eBay and their Buy It Now initiative appealing to the impatient has improved the outlook for the lagging site. At the annual meeting the company projected doubling the users on eBay's e-tail site.

This small pilot program to sell it forward is just one of many initiatives the company has tried. It looks promising but be warned Amazon is truly a formidable e-tail competitor. When it comes to books and new merchandise Amazon has it all over eBay. 

Their big competitors

As well as offering electronic hardware Amazon is originating media content, a fertile area for growth for them. Their eighth pilot has been approved for Amazon Studios. Rival Netflix has also been creating content with the content is king theme rising in prominence among all the media companies. More appealing content would help drive Amazon Prime membership (12% profit margin) numbers.

Amazon's web services, its cloud computing infrastructure program, is a little mentioned part of the package with services like rental of supercomputer time, especially valuable to research facilities.

Amazon is trading at a rich forward P/E of 73.61 and a PEG of 4.58. It's trading close to 8% off its 52 week high of $284.72.

While anecdotal, customer service at Amazon is generally considered better at Amazon than eBay's Marketplaces. This is one issue eBay has to address to keep the momentum going for any eBay/Goodwill project's goodwill effect.

As for Visa, it trading at a much higher multiple than eBay and its own competitors American Express, Mastercard, and Discover Financial Services at 46.60. Discover trades at only a 9.90 P/E and playing nice with eBay seems to be paying off for them.

In its favor Visa has zero debt, a 59.33% operating margin, and a small yield of .80%. Trading at 52 week highs and already up 49% over the last year there may be little upside left in the short term.

Attracting new eBay sellers

For eBay's Marketplaces it all comes down to getting new sellers who can make money without a hassle. That has been the attraction of Fulfillment By Amazon; it appeals to the lazier among us.

In the Sell It Forward program prepaid mailers and an automatically generated tax-deductible receipts saves hours of work for sellers and should garner some great word of mouth. If executed well, sellers who may never have sold on eBay before could become long term customers.

Is it time to abandon the eBay cart?

These Sell It Forward and Buy It Now concepts could finally reverse the fortune of Marketplaces. Sloth and impatience are two sins they can exploit successfully.

A caution: eBay traded at a 16 P/E last November so wait for a pullback. But it's still the value name among Amazon and Visa. So, yes, you can buy it forward with a clear conscience.

AnnaLisa Kraft has no position in any stocks mentioned. The Motley Fool recommends, eBay, and Visa. The Motley Fool owns shares of and eBay. 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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