The mobile shopping boom means business.
For the latest evidence of that trend, just look at this past holiday season's results. Mobile devices were the shopping tools of choice, surging to 16% of online sales, up from just 10% in 2011.
But while consumers are happy ditching their PCs in favor of mobile devices, the transition hasn't been as fun for many web companies. With smaller available screen space, the profit model that worked so well on desktops just isn't translating to mobile devices. Still, I see two companies that are well positioned to benefit from this huge consumer trend.
Where smaller isn't better
First, let's survey the damage. The move to mobile has hit a lot of businesses right in the wallet.
Internet radio pioneer Pandora (NYSE: P ) is a great example. Quick adoption of its music-streaming app powered the company to 59 million active users, a full 47 % higher than the year-ago quarter. But all that growth is coming at a cost. Pandora's mobile ad revenue per user is barely 40 % what it can get for each desktop listener. The company has tried to adjust to those poor economics by boosting the frequency of ads it delivers. But that can only take you so far before users revolt.
And not even Google (NASDAQ: GOOGL ) , with its gorilla grip on search, has mobile figured out. Its average cost-per-click rates fell by 15 % last quarter as the increase in mobile-based searching pressured ad revenue margins.
Facebook (NASDAQ: FB ) is feeling its way through the market, too. The social network is a force in the mobile space, boasting 600 million users. And a surprising bounce in mobile ad revenue from the company was enough to convince industry watcher eMarketer to dramatically boost its estimates on the health of the mobile ad business. But with just 14 % of ad revenue coming from mobile, it's not clear yet how Facebook can monetize that massive user base.
A great vacation
But travel site TripAdvisor (NASDAQ: TRIP ) is already thriving in the new mobile environment. The company's travel planning apps have been downloaded 26 million times, drawing 35 million monthly users. TripAdvisor has resisted the urge to soak those customers with ads, instead choosing to protect the apps' usability. As the company explains in financial filings:
... we have designed our mobile product to be user-friendly and have chosen not to monetize that platform to its full potential at this time. We expect the long-term benefits of a more engaged mobile audience to outweigh the short-term revenue that we could generate from, for example, an increased number of advertisements .
Passing up that short-term ad revenue pop hasn't hurt earnings much. It last reported an 18% surge in revenue on 15 % higher click-based advertising sales. Now handling 10% of all online travel searching, TripAdvisor is comfortably the leading travel website in the world. It's true that, with just a few quarters under its belt as an independent company, it still has a lot to prove. And at over 30 times earnings, it isn't cheap. But the company owns a strong ecosystem in online travel planning, and that's why I think it deserves a spot on your watchlist.
Don't need the money
Yet my favorite play on the mobile spending surge is a company that makes no money from advertising at all. eBay (NASDAQ: EBAY ) just doesn't need it. Its mobile business is strong enough by itself. As Devin Wenig, president of its global marketplaces division, recently said about mobile ads, "We aren't happy with the user experience and we don't need the money."
I'll say. eBay's PayPal service handled $14 billion in volume last quarter, more than three times last year's figure . To boot, active users grew by 12%, to 112 million, thanks to strong mobile adoption. That success helped eBay's overall profits rise to $2.6 billion, powered by a 21% surge in revenue .
And eBay's mobile business isn't resting on its online success. More than 20 major retailers now accept PayPal at over 18,000 locations. With an aggressive push offline, eBay can finally take a crack at the $10 trillion global physical retailing market. Yes, the company hasn't yet figured out how to get healthy consumer adoption, but it's working on it.
Foolish bottom line
Just because the surge in mobile shopping is frustrating many companies' business models doesn't mean that investors can't benefit from it. TripAdvisor and eBay are two great ways to gain exposure to this trend in the form of solid businesses with great long-term potential.