Breaking Down the Opportunity for eBay Investors

Originally rising to prominence as one of the darlings of the original tech bubble, eBay (NASDAQ: EBAY  ) proved last year that its days of generating massive returns for shareholders are far from behind it. However, the eBay investors find today looks barely recognizable when compared to its original online auction business model -- and that's a good thing. Thanks to a set of savvy business decisions, eBay has refashioned itself into an e-commerce powerhouse to rival online megastore Amazon. However, after putting up some amazing numbers in 2012, does eBay still have what it takes to keep investors happy? The Fool recently created a premium research report that breaks down in clear detail each facet of eBay's online empire. To help inform our readers, we've included a brief excerpt from this report in the text below. Enjoy!

The opportunity
There was a time when eBay seemed as if it was a collector of verbs, snapping up PayPal and initially overpaying for Skype.

eBay has scaled back on the verbs. It sold a majority stake in Skype to Microsoft -- at a great price -- and in March 2012 unloaded Rent.com when it sold it to Primedia in a $145 million deal.

The eBay that remains is a thriving one-two punch of online marketplaces and transaction enabling.

Both business are vital and growing, with total revenue and adjusted earnings climbing 15% and 14% respectively in the company's third quarter of 2012.

Making marketplaces happen
eBay's namesake marketplace business is still the biggest piece of the pie, generating $6.6 billion in revenue, or 57% of the company's total, in 2011. Even as other parts of eBay's business grow, Marketplace was 53% of the company's revenue in the third quarter of 2012.

There are now 108.3 million active global users, 10% ahead of where the company was a year earlier. That may not seem like much, but it's actually the company's healthiest active user growth rate in five years.

It gets better.

The number of items sold on eBay have increased 19% over the past year. Investors like to see this metric grow faster than user growth since it reveals that the average eBay user buying more through eBay. That's good news for eBay sellers as well as its shareholders.

Sticking to the third quarter, marketplace revenue climbed just 9%, but that would've been a 13% uptick on a constant currency basis.

PayPal is a bull's pal
Many will rightfully argue that PayPal has been carrying the company for years. The $1.4 billion in revenue generated by the company's payments business in its latest quarter, while just 40% of the top-line mix, is where the healthier growth can be found.

There are now 117.4 million global active PayPal accounts, 14% ahead of last year. Another encouraging metric is that there were 589.2 million transactions processed through PayPal last quarter, a healthy 28% year-over-year advance. Just as the average eBay shopper is buying more, the average PayPal account is engaging in more transactions.

A whopping $35.2 billion in total payment volume was transacted through PayPal during the three months ending in September. Even though a record 76.6% of eBay purchasing volume is now settled through PayPal, eBay itself is now accounting for less than a third -- or $11.5 billion -- of that volume.

The push to make PayPal matter outside of eBay.com is working. PayPal's revenue has soared 23% over the past year, or 24% if we adjust for foreign exchange fluctuations.

Find more great stocks
eBay has been a longtime pick of Motley Fool superinvestor David Gardner, and has helped his Stock Advisor portfolio achieve gains of more than 120% since 2002. David specializes in identifying game-changing companies like this long before others are keen to their disruptive potential, and he helps like-minded investors profit while Wall Street catches up. I invite you to learn more about how he picks his winners with a free, personal tour of his flagship service, Supernova. Inside, you'll discover the science behind his market-trouncing returns. Just click here now for instant access.


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