eBay Could Never Disappoint, Or Could It?
Jacob 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 witnessed an increase in its year over year gross merchandise volume growth and this growth is the outcome of new users acquired in the past few quarters. eBay holds the view that, on an average, one in every three purchases on eBay is by mobile. The company expects to process over $10 billion in mobile payments, in 2012.
The online retailer claims that its mobile app has been downloaded 100 million times since its launch four years ago, the figure is almost equal to the number of the active users, who bought, listed, or sold something on eBay last year.
The company recorded total revenue of $3.4 billion in the third quarter of 2012, an increase of 15% year over year. The adjusted net income stood at $718 million or 55 cents per share, an increase of 14% year over year.
Fourth Quarter Expectations
The company expects to post revenues between $3.85 billion and $4 billion, with adjusted earnings per share at 66 cents to 69 cents. eBay is expecting increased revenues for the fourth quarter, owing to the holiday shopping season.
eBay launched its same day shipping service in 2012 and invited some of the San Francisco users to a new same-day shipping service called eBay Now. An iOS app, eBay Now’s beta will allow SF residents get $5 same-day shipping on products from local stores. It’s now signing up users for “exclusive beta”.
Prior to eBay, TaskRabbit and Uber provided consumers with this kind of facility, and now eBay wants consumers to get the same experience through its service. Consumers are witnessing the rise of convenience technology.
eBay also acquired Sypply, a New York-based startup that duplicates the experience of window-shopping online with a social, curated, and personalized experience. Sypply offers accurate selection of stylish merchandise from across the Web. Through the services offered by this site, online shoppers can keep the record of products they like. Ccustomers can also see what their Facebook and Twitter friends like and help to discover the products from other users. It also allows users display galleries of items they want or own.
eBay changed its logo in 2012. The colors of the logo are the same, but the font has been changed to give a modern and sleek look, and the word “eBay” is nicely aligned in a straight line.
eBay's major competitors are: salesforce.com and Rackspace for Cloud Services. Traditional retailers like Wal-Mart, Target, and Costco also impact eBay’s business. Amazon.com is also a retailer in tech clothing.
In the past few months, retailers including Wal-Mart and eBay, have been testing the same-day delivery service, to compete with similar Amazon.com (NASDAQ: AMZN)’s initiatives. If eBay succeeds in its efforts, it will be a major blow for Amazon.
On the competitive front, Amazon continues to invest heavily in its global distribution footprint (which differentiates it from eBay), and Amazon has targeted the apparel category as a major focal point for investment (apparel is a major category for eBay). While eBay’s growth has improved, Amazon has a long-term competitive advantage for 3rd party sales with Fulfillment by Amazon shipping and is growing 3rd party units at about 2.5x eBay’s unit growth.
For PayPal, risks include growing expectations for PayPal offline, competition from Visa, MasterCard, Google (NASDAQ: GOOG), Amazon, and Isis, pressure on PayPal take rates due to large merchant mix shift, and volatility of PayPal cross-border transactions due to FX volatility.
Google shopping, a subsection of Google, allows users to search and filter a product results by relevancy or by price. Google shopping is expected to become a virtual shopping mall, competing directly with Amazon and eBay.
According to a report by Raymond James in January, comparison Shopping (CSE) is up 15.5% y/y driven by strong consumer and merchant activity on Google Shopping. Google is now showing Google Shopping for a lot more search queries. CA noted that consumers are responding well to PLA ads, which they assume is to the detriment of traditional paid search.
PayPal has turned out to be an amazingly profitable acquisition for eBay. In eBay's third quarter, PayPal's revenue reached $1.4 billion and its total payment volume grew to $35.2 billion. The increase of 24% in PayPal’s revenue contributed 41.1% to eBay’s third quarter’s total revenue. Those numbers are incredible. By the end of fiscal year 2012, eBay expects over $10 billion in mobile payments alone. PayPal also has very healthy merchant transaction margins of 64.8%.
The mobile payments market is all set to rise from $240 billion to $640 billion by 2015. This market is luring the financial institutions like Bank of America, and also Square and Intuit. With the probable growth in the market, competition is building, and PayPal is well positioned to take over the mobile payments space.
The reason behind the dominance of PayPal over the mobile payment market is due to “share of Wallet.” This is the cost to switch banks. Many retail bank customers will endure high fees due to the number of products and services they have with the bank.
EBay already has 117 million active users. These users may find it easy to stay with PayPal instead of switching to the other option if they are using eBay mobile and online services and also Bill Me service.
The e-Commerce and shopping on mobile devices are set to grow in the future with increasing rates, this would help the original players in the space’ i.e. eBay Inc. According to an analyst from Canaccord Genuity, the e-Commerce will continue its growth because these models are more efficient, mobile and more useful and eBay is standing in the safe zone. The fundamental outlook of the company is stable and could see an improvement in the future.
Strong financials and intelligent acquisitions, along with a strong presence in the growth sectors, make the stock a must-have in one’s portfolio.
valuewalk has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, eBay, Google, and Salesforce.com. The Motley Fool owns shares of Amazon.com, eBay, and Google. 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!