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Why Now Is the Time to Buy eBay Stock

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Stocks are moving on quarterly earnings this week, and eBay is no exception. Investors sent eBay (NASDAQ: EBAY  ) stock lower in after-hours trading on Wednesday, despite the e-commerce company posting a 19% increase in profit for its first quarter. Unfortunately, double-digit increases in both revenue and profit weren't enough to stop shares of eBay from dipping more than 5% at the market open today. What's really going on with this Internet darling?

The stock stumbles
Slowing sales growth in eBay's PayPal division coupled with a weaker-than-expected forecast for the company's second quarter is the real culprit. The company issued second quarter earnings guidance of $0.61 to $0.63, and revenue between $3.8 billion and $3.9 billion. For comparison, analysts had expected earnings of $0.66 per share on revenue of $3.95 billion.

The market failed to factor in the fact that eBay's full-year guidance remains the same. This tells investors that eBay's transformation is readily underway, and that its long-term growth trajectory is still intact.

It's also important to note that eBay is up about 55% in the last year, whereas rival e-commerce giant Amazon (NASDAQ: AMZN  ) is up 41% for the year. Additionally, what the recent decline in the stock doesn't show is that eBay is on its way to becoming a global powerhouse. Much like its rival Amazon, eBay is a long-term investment play. Alas, quarterly earnings forecasts can distract investors from taking a bigger picture view, which is often necessary when investing in a growth stock or turnaround story, such as eBay.

A more competitive marketplace
In an effort to reinvigorate its namesake marketplace, eBay is taking a page out of Amazon's playbook. Similar to Amazon's pricing structure, third-party sellers on eBay's platform are now able to list products free, and simply pay a flat sales fee on the final value of the item sold. This strategy appears to be working, as eBay added 3.9 million new users to its online marketplace in the first quarter.

Moreover, eBay CEO John Donahoe aims to double the company's active user base in the next two years, with the goal of reaching $300 billion in sales and PayPal payments by 2015. While this is certainly ambitious, eBay is well-positioned in mobile, and has a growing network of large retail partners -- two growth drivers that should push the stock higher in future quarters.

Amazon may be eBay's biggest competitor today; although, where the stocks are concerned, eBay is the name to own today. To that end, Amazon trades at more than 74 times next year's earnings, which makes the stock look wildly overpriced. eBay, on the other hand, trades at just 17 times fiscal 2014 earnings.

Everyone knows Amazon is the king of the retail world right now, but at its sky-high valuation, most investors are worried it's the company's share price that will get knocked down instead of competitors'. The Motley Fool's premium report will tell you what's driving the company's growth, and fill you in on reasons to buy and reasons to sell Amazon. The report also has you covered with a full year of free analyst updates to keep you informed as the company's story changes, so click here now to read more.

Read/Post Comments (3) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 19, 2013, at 10:25 AM, NobodysFool2013 wrote:

    Yet another horrible article from the Fool. Once was a time, Motley Fool actually published relevant articles. Today all the articles are just spam for the last paragraph.......

    "The Motley Fool's premium report will tell you what's driving the company's growth, and fill you in on reasons to buy and reasons to sell Amazon."

    Tamara Rutter has no right to even call herself a journalist but that's what happens when news outlets start paying bloggers to deliver news.

  • Report this Comment On May 16, 2013, at 8:07 PM, yamahadude wrote:

    anyone buying ebay stock is foolish. ebay top rated stores sales are down! I talk to sellers all the time- we are hurting ! I have NEVER seen ebay this slow- the last year is the worst it has been in 10 years I have been doing it!

  • Report this Comment On November 02, 2013, at 12:41 PM, JohnDontknowhow wrote:

    Ebay gutted it's program that drives sales to its site on Oct 1st, 2013. This will be a death knell to over the holidays. Just Google "ebay partner network forum" and visit that forum to see what's going on. Unreal.

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