1 Company (Still) With Unlimited Growth Potential
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Few companies have revolutionized the world of ecommerce more than eBay (NASDAQ: EBAY). When eBay went public in 1998, its business was aimed at connecting buyers and sellers in an online marketplace, and it served as a broker between parties to safeguard against fraudulent transactions. To this day, the company remains focused on that objective, but its main source of revenue – its Marketplace division – is no longer the most the important component of eBay’s growth in the future.
Although the Marketplace is still eBay’s largest operating segment in terms of revenue, investors should instead be paying attention to the exponential growth of the Payments division – the segment of eBay’s revenue that includes PayPal. The Payments division grew 13% from 2009-2010, and leapt 66% from 2010-2011. eBay’s net revenue increased 27% in 2011, which was largely due to PayPal’s 29% increase in net total payment volume. In the company’s most recent conference call, eBay executives pointed to the surge in active PayPal accounts and the increased adoption of PayPal on mobile devices. Nearly $14 billion had been transacted using PayPal's mobile platform by the end of 2012 – that number is triple the volume in 2011.
It seems that virtually all analysts – the bulls, the bears, and the undecideds – agree that PayPal is eBay's greatest asset. But just how significant are these numbers in the context of eBay’s strategy?
In the conference call, eBay executives revealed PayPal's offline expansion efforts, with 23 major retailers now accepting the method of payment as a point-of-sale solution. eBay and Jamba Juice (NASDAQ: JMBA) have been testing an order-ahead feature by which Jamba-lovers can order their smoothie in advance, pay with PayPal, skip the line and get on their way with a Razzmatazz in-hand. eBay plans to extend this feature to more Jamba locations soon.
The pilot program with Jamba makes sense. The smoothie maker has been opening “non-traditional” franchise formats in grocery outlets, college campuses, and travel hubs – essentially, Jamba is positioning itself to attract on-the-go customers. It’s not really a sit-down-and-hang-out-for-three-hours kind of place.
The alliance of these two companies and their "order-ahead" concept is an interesting idea, but it won’t move the needle on PayPal's offline revenues. For eBay to position PayPal as a workable method to transact in brick-and-mortar stores, the company needs to develop the infrastructure on a large scale to accept such a method. eBay’s recently-announced partnership with the tech company NCR (NYSE: NCR) is an affirmation that PayPal-use offline is feasible and within reach.
NCR isn't a household name, but we see the company’s products all the time. NCR builds the self-checkout machines that shoppers use at the grocery store, it designs the technology used within bank ATMs, and it manufactures the automated kiosks that travelers use to print a boarding pass at the airport. As the company states on its website, “NCR is at the center of the self-service revolution, strategically poised between consumers who demand fast, easy and convenient options” – and toward this point, the partnership with eBay is mutually beneficial.
When eBay CEO John Donahoe announced that NCR would integrate eBay’s payment capabilities, he poorly described a scenario by which the new innovation could be useful. He set the scene of a restaurant: “...Consumers can simply use PayPal to pay for their dinner from their smartphone without having to wait for the check.”
Mr. Donahoe didn't hit home the real value of the improvement. He should have made the illustration about a hurried customer – someone eager to bypass a line – a moviegoer purchasing tickets at the theater, a concert attendee buying drinks during intermission, or a soccer mom running to get Capri Sun while her daughter’s game is still in play. It's those consumers that will find the NCR-eBay development to be tremendously convenient.
eBay recognizes the acceleration of mobile technology. It sees portability as becoming the new normal. The company is leading the transformation of how consumers shop and pay, and, with the infrastructure that NCR can provide, PayPal’s rapid expansion is nowhere near slowing down.
Robby Greengold doesn't have a financial interest in any of the companies mentioned in this article. The Motley Fool recommends eBay. The Motley Fool owns shares of 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!