Improvements in Marketplace and Payments Make eBay a Good Buy

By Ashish Sharma - July 12, 2012 | Tickers: AMZN, EBAY | 0 Comments

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eBay (NASDAQ: EBAY) platform enabled nearly $150 billion of commerce volume in 2011. With its three market components, namely the marketplace, payments, and recently acquired GSI Commerce, eBay has had a great 1Q2012. The company is set to release its 2Q12 results after market close on July 18^th. We expect the company to continue on its growth trajectory in the long term with its upcoming products and the increasing use of mobile and handhelds.

Key Positives for eBay

Source: Key Metrics eBay

• PayPal Performing increasingly well with focus on merchants and mobile systems:

Merchant services played an important role in increasing the total volume for payments as its share in net TPV rose from 56% in 2009 to 66% in 1Q2012. PayPal is hoping to generate higher revenues by increasing its focus on merchants with the introduction of an in-store payments platform for large retailers and PayPal Here (a card reader that attaches to mobile phones for small businesses and POS).

 Source: Share Holders Meeting eBay PPT

Mobile systems seem to be another focus area for PayPal. Mobile TPV’s for PayPal rose to around 4 billion in 2011 from 0.1 Billion in 2009. With its acquisition of Zong (a service provider that adds your purchases to your phone bill), PayPal is looking to strengthen its position in the mobile payment business even further.

• Continued marketplace improvements:

Source: Key Metrics eBay

• Fixed price share in gross merchandise value increasing Y/Y: Gross merchandise value (GMV) is the total value of goods sold in the marketplace. The increasing share of fixed price goods sales in GMV will result in increasing rational sellers in the marketplace.

• A&M to improve user experience: Through eBay’s acquisition of Milo, eBay users can now search inventory from physical retailers, pay through PayPal and then pick up the product from the nearby store. Apart from that, eBay's acquisition of Redlaser allows its customers to scan bar codes in order to find the goods in the closest location at the cheapest price.
• Focus on Cross Border Trade: eBay is looking to focus on countries where demand is strong by focusing on cross border trade (CBT), adding another big revenue opportunity.

• PayPal's foray in TV space:

PayPal looks to capitalize in the large television whitespace by enabling TV viewers to buy products and pay using their remote controls directly through their TV sets.

eBay had a strong Q1 with double digit top and bottom line growth, and we expect it to continue this pattern with the introduction of new products on the payments front and with vast improvements in the marketplace. Although eBay lies far behind Amazon (NASDAQ: AMZN) in the marketplace segment right now, the company is making significant adjustments. Apart from that, eBay also has strong prospects in its payment segment. With many improvements coming its way, eBay looks underappreciated with a low forward PE of 14.9, and we would therefore rate this stock as a buy.  

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