4 Reasons to Buy This Company
William is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Technology makes our lives easier. Consequently, the efficiency it creates increases the number of tasks accomplished in a day, changes behavior patterns, and influences how we view things. The online auction house, e-commerce and transaction powerhouse, eBay (NASDAQ: EBAY) does all of the above and plans to add shareholder value by continuing to do so. eBay belongs in your portfolio as a long term holding. Here’s why:
1.) eCommerce – eCommerce provides a great deal of advantages. Customers can simply order online from the comfort of their own homes without having to stand in line and fight mean crowds. eBay drives this trend. According to eBay’s 4th quarter earnings call (sign-in required) it enabled 19% of global e-Commerce in 2012 also giving indication of room for growth.
eBay’s Marketplace segment represents the more traditional and mature side of eBay. In this division eBay brings buyers and sellers together through its online auction house. It creates an efficient and easy market for someone who wants to unload their collectibles. It also serves as a channel in which a store can sell its goods. For example, you can buy toys from Toys R’ Us through eBay.
Through eBay’s GSI segment, eBay helps merchants sell online by helping them to set up e-Commerce websites.
Safety remains one of the hang ups about e-Commerce. eBay’s payment segment, PayPal, enables safe and anonymous transactions not only on eBay itself but throughout the whole internet and increasingly beyond.
2.) Safety and convenience – The mobile revolution will make the shopping experience even easier and PayPal will make it even safer.
eBay drives new growth from mobile apps and strategic alliances in the offline world. eBay partnered up with consumer interaction technology company, NCR (NYSE: NCR) to incorporate PayPal’s technology into NCR’s to make it easier for customers to pay their bill using the PayPal app on their smartphone. According to an article by Reuters, NCR counts “38% of the top 100 U.S. restaurant chains and 50% of the major retail chains” among its customer base.
In the words of CEO John J. Donahoe in eBay’s last earnings call this reduces “pain points.” Not only does this free up customers’ valuable time but it allows a waiter to help more customers moving the line quicker and increasing business for the restaurant. Customers can do this without the worry of giving out credit card information. The eBay/NCR deal will also allow customers to buy gas and food at gas stations and convenience stores through PayPal on the smartphone.
In another example from the earnings call, eBay and Jamba Juice (NASDAQ: JMBA) are testing a feature where a customer can preorder their juice through PayPal and upon arriving at the store simply skip the line and pick up their beverage and leave. Again, this allows the business to serve more customers by increasing the speed of service.
PayPal’s partnership with Jamba Juice provides an excellent opportunity to expand PayPal’s footprint. According to the Fool article, “Jamba Juice Blends Well With PayPal” by Rick Aristotle Munarriz, Jamba Juice “plans to open 60 to 80 new stores” and add “1,000 self-serve Jamba Go locations and 100 limited-menu Smoothie Stations.” This could make the cashier obsolete. In the case of Jamba Juice, just order your juice and go to a station and fill up.
The partnership between PayPal and Discover serves as an example of eBay expanding PayPal’s safety and security to the offline world. The deal will expand PayPal’s footprint by adding 7 million merchant locations in the offline world. eBay wants to reach that “ubiquity” enjoyed by large companies such as McDonald’s and Wal-Mart. The use of the Paypal button in a store adds that extra layer of security for Discover card users.
3.) Focus – eBay’s sale of Skype to Microsoft and Rent.com to Primedia indicates eBay’s increasing focus on its core competencies such as bringing buyers and sellers together in a safe and efficient manner.
4.) Fundamentals – eBay grew its revenue in all of its segments mentioned above, but most notably in its payment segment increasing 24% in the fourth quarter 2012 versus the same time last year driven mainly by mobile apps. PayPal Mobile tripled its payment volume since fiscal year 2011.
eBay’s marketplace segment revenue increased 16% in the fourth quarter 2012 versus the same time last year. The revival in the auction business was driven by apps. The convenience provided by apps aids in customer retention.
GSI grew its revenue 13% in the last quarter versus the same time in 2011. GSI growth catalysts include merchandise, same stores sales, and again mobile technologies including apps.
Shareholder wealth shows in eBay’s balance sheet with cash and investments clocking in at 60% of stockholder’s equity. Long term debt to equity registers at 79%, below my personal threshold of 85%.
In summary, e-Commerce will grow in everyday relevance as it makes commerce as a whole better by increasing the ease of buying goods and services. eBay will continue to thrive by making it easier and safer to buy online and offline through the use of mobile apps. eBay’s increased focus on its core competency will drive shareholder gains. Its excellent balance sheet will give it increased flexibility in investing in technologies. All of this adds up to market beating gains.
stockdissector owns shares of Microsoft and McDonald's. 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!