A Look into eBay's Future

The online-retail market in the US continues to grow rapidly. As a result, eBay (NASDAQ: EBAY  ) , Amazon (NASDAQ: AMZN  ) and Overstock.com (NASDAQ: OSTK  ) are innovating their mobile applications to get the most out of this growing market.

Let's see where eBay is heading and how it stacks up with its rivals.

Third-quarter report
In the third quarter, eBay reported per-share earnings of $0.53, which represents an increase of 17.7% from the comparable quarter last year. Revenue also rose 14% from the year-ago quarter and stood at $3.9 billion. Total enabled commerce volume, or ECV, jumped 21% to $52 billion as the company kept on performing well in all segments.

eBay's Marketplaces segment delivered a strong performance, with revenue jumping 12% to $2 billion. Active users for Marketplaces also rose 14% to 124 million, which was largely attributed to the company providing free shipping on more than half of US transactions. Marketplaces' popularity continued to rise as the total selection of items increased to more than 500 million listings.

PayPal continued to remain strong by contributing more than 40% of eBay's sales. PayPal's revenue increased by 19% to $1.6 billion, while total payment volume grew 25% to $44 billion. The company benefited from the success of the enhanced PayPal consumer app as the active registered accounts for PayPal increased 17% to 137 million.

As far as eBay Enterprise was concerned, its revenue grew 5% to $238 million. Its commerce technologies drove $787 million in merchandise sales, representing a 13% year-over-year increase. Also, eBay Enterprise helped its clients grow same-store sales by almost 13%.

What is eBay up to?
In the third quarter, volume for mobile-enabled commerce rose by a staggering 75%. eBay continues to regard mobile transactions as a high-growth segment. For this reason, the company is investing heavily in its apps for Apple's iOS and Google's Android. As part of this plan, eBay recently acquired Braintree, a Chicago-based payment-processing company. Through this acquisition, the company will be able to benefit from Braintree's app, Venmo, which lets customers make payments from smartphones and tablets. This will make sure that eBay's growth in online payment solutions remains on track.

PayPal's President, David Marucs, has also highlighted the fact that mobile transactions will transform the e-commerce industry, and iOS and Android will be the forces behind that revolution. According to Marcus, the company's latest innovation, PayPal Beacon, will reinvent the in-store shopping experience for customers. Beacon, based on Bluetooth low-energy, or BLE, technology, will provide a complete hands-free experience to consumers while they pay at their favorite outlets. The customers will just need to have the PayPal app installed in their phones along with the BLE hardware, while the store will need a BLE dongle provided by PayPal. The customers will be greeted at check-in and only a verbal confirmation will be needed when they pay at check-out. No card, no wallet, the customers won't even have to touch their phones to provide payments.

Fundamentals
eBay has a high operating margin of 21% in comparison with the industry average of 16%, which shows that the company generates healthy profits on its revenue. eBay's debt-to-equity ratio is 19.90, which is less than the industry average of 23.70; this indicates that its borrowed capital is on the lower side.

Low price-to-free cash flow of 16.32 and price-to-book value of 2.94 strengthens my belief that eBay is a value stock. Furthermore, the company's low forward price-to-earnings of 16.9 signifies that it's a good bargain at this moment. 

Competitors
Online retail giant Amazon posted $17.09 billion in revenue for its fourth quarter, representing a 24% year-over-year increase. Amazon expects a lot from its technology business, therefore it is investing heavily in its Kindle Fire tablets and cloud computing services. This January, the company will expand its cloud computing services to China, which it expects to be a big growth catalyst. As the company keeps on growing, it expects its fourth quarter revenue to be in the range of $23.5-$26.5 billion. For the year, the company expects double-digit revenue growth as its sales keep on rising. Considering all of this, Amazon appears to be in great shape.

In the third quarter, Overstock.com missed its earnings expectations by $0.01 and posted EPS of $0.14. Earnings, however, did grow 27% from the year-ago quarter. Sales were also up by 18% to $301.4 million. The company's sales and marketing expenses jumped by 51%, forcing its operating margin downward.

The Web Marketing Association recently named Overstock's app for Android the best mobile retail application. Overstock, like eBay, knows the importance of mobile apps for future growth as it has continued to improve its Android app which now has simplified browsing, sharper images and better search options. As the app gets more popular, the company expects more revenue in the future.

Final thoughts
eBay's third-quarter report shows that the company's revenue is still growing as it keeps on increasing its active member count. eBay's latest innovation, PayPal Beacon, promises to attract customers in large numbers as it's a one-of-a-kind product in the industry. The company is seeking to benefit from its mobile apps, which are set to become the catalysts for future growth. eBay's latest acquisition of Venmo will make sure that it remains ahead of its competitors in the mobile app world, as more user-friendly apps mean more revenue for the company. All-in-all, eBay has a great online platform that will spur high returns in the future. Taking all this into consideration, I believe that eBay presents a good investment opportunity at this point in time.

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  • Report this Comment On January 14, 2014, at 12:08 AM, PhilipCohen wrote:

    eBay: promises, promises, promises, always some time in the future ...

    The ugly reality of eBay Inc.:

    eBay's crooked auctions marketplace ... bit(DOT)ly/11F2eas

    eBay Motors: Auction Fraud Galore … bit(DOT)ly/I2gTEU

    eBay's clunky, unscrupulous "PreyPal" ... bit(DOT)ly/UVXx53

    The ongoing joke of it all ... bit(DOT)ly/YvxFEg

    Fun quotes from the eBay executive suite ... bit(DOT)ly/12xvzyA

    Shill bidding fraud by professional sellers on eBay nominal-start auctions is demonstrably endemic; many of the bidders who bid early and often on such auctions are most likely to be sellers' shills, and eBay Inc. is—also demonstrably—the greatest knowing and calculated facilitator of such fraud on consumers that the world is ever likely to know and, doubtless, there will be a trickle down effect of like criminal activity to other eBay operations ...

    The only thing that surprises me about this criminal enterprise is that it has not yet summoned up the gall to try to further hide the endemic shill bidding fraud, by converting its auctions wholly to the “private listing” format, or the bidding IDs to “Bidder 1”, “Bidder 2”, “Bidder 3”, …, as they initially were going to do when John Donahoe first introduced the additional layer of anonymity for (shill) bidders in 2008, nor, just as surprisingly, have they yet ceased to publish the details of "completed" listings, a post-sale analysis of which can, with some effort, demonstrate a great deal of blatantly obvious, eBay calculatedly-facilitated, shill bidding fraud ...

    And what does the "smart money" on Wall Street think about eBay Inc? Well, in August 2007, when Bain’s Johnny Ho was already effectively in control of eBay, the share prices of both eBay and Amazon were ~$40; today, eBay is ~$52; Amazon is ~$400 ... Now, seriously, what more can be said, other than ...

    eBay / PayPal / Donahoe: Dead Men Walking ...

    I also have to wonder if Pierre Omidyar has ever thought about just how much more fabulously wealthy he might now have been had he not ok’d the handing over of the control of eBay to the incompetent, destructive, unscrupulous, narcissistic sociopath—Johnny Ho?

  • Report this Comment On January 14, 2014, at 12:46 AM, NobodysFool2011 wrote:

    Laughing at ... Paypal Beacon will provide a "complete hands-free experience" .... After the recent debacles with Target and Neiman Marcus, Nordstrom getting hit with credit card skimmers in October, etc... Yeah right, consumers will just be jumping at the opportunity to transmit their payment info from their phones via incredibly insecure Bluetooth BLE. Sorry, except for some hipster geeks paying for their Starbucks lattes via their iPhones, not likely to catch on anytime soon and by the time it does, Paypal won't be in the midst.

    While Paypal works fine for eBay and small online purchases, everyone knows it's a skim. Paypal is absolutely unnecessary for brick & mortar purchases and will never replace credit/debit cards or good old cash.

    Hey, wake up !!! it's 2014, not 2010 ~ the buzzwords "mobile" and "apps" are over-played as much as "social media" was in 2010. It's not new customers using mobile apps, it's the same people switching from desktop to handheld device.

    Lastly, it's high time investors stopped using "number of signups" as a metric to judge a company. With eBay, far too many people have one eBay account for buying, another for selling and a third for accessing eBay's message boards. A true metric would be number of accounts that have bought or sold in the last 30 days but of course, eBay will never let the cat out of the bag and admit that only 20-25% of their accounts are active.

  • Report this Comment On January 14, 2014, at 3:05 AM, PhilipCohen wrote:

    Hey, “Nobody’sFool”, you forgot to mention all the shill bidding IDs being constantly turned over in the hands of the merchants selling via nominal-start auctions and also the commercial suppliers of shill bidding services therefore … bit(DOT)ly/11F2eas

  • Report this Comment On January 14, 2014, at 11:44 AM, NobodysFool2011 wrote:

    @PhilipCohen - I've never used auctions as either a buyer or seller on eBay so shill bidding is of little concern to me. If I want something, I buy it, don't want to wait for an auction to end. Even so, I'm not going to get into a bidding war. Been to enough real life auctions to know people bid each other up just for the sake of it (watch Storage Wars or Storage Hunters).

    What concerns me is eBay's fundamental lack of ethics in reporting numbers and John Donahoe's use of buzzwords like "mobile" and "apps" to inflate perceived value.

    I will admit, it irks me that eBay turns the "blind eye" to TOS abuse, poor performance and obvious fraud from certain selected merchants while hammering down on others thus creating an uneven playing field and giving advantage to partners.

    However, eBay is reaping what they've sown as a bad reputation is the hardest obstacle to overcome in business. The fact the stock is moving sideways between 50-56 per share is evidence their is no growth as with Amazon.

  • Report this Comment On January 14, 2014, at 3:51 PM, PhilipCohen wrote:

    @NobodysFool—Agreed, you only have to watch any financial or social media site to see the ever increasing number of negative comments from consumers about eBay and its ugly adopted daughter "PreyPal".

    Johnny Ho has done, and is continuing to do irreparable financial damage to just about everyone involved with eBay—except himself, of course ... and the classic demonstration of that damage is indeed the abysmal eBay stock price performance (compared to Amazon, in particular) since the cretinous Ho turkey was handed the helm ...

  • Report this Comment On January 14, 2014, at 11:13 PM, PhilipCohen wrote:

    “Ignorance can be fixed, stupid is forever.”—Don Wood ...

    [Clearly, John Donahoe’s condition is forever …]

  • Report this Comment On January 15, 2014, at 4:35 AM, hbk72777 wrote:

    "is still growing as it keeps on increasing its active member count. "

    his isn't what it seems. Many people re-create new selling accounts after getting kicked off of ebay. I have over 30 accounts myself. There hasn't been new customers in years. Hell, many of my customers have also been kicked off, but come back with new accounts, I usually figure it out after they pay and see their real name. If anything, it's falling. I haven't had new customers in a long time, it's just the same group of collectors for the last 5 or 6 years.

    Ebay is done

  • Report this Comment On January 15, 2014, at 2:58 PM, BioBat wrote:

    You guys are hilarious. To say you've never used auctions and then say it's rigged all in the same sentence. Hilarious.

    I've bought and sold stuff through eBay auctions for decades. Most people who do it, do it smartly and have no trouble whatsoever by looking at a buyer and seller's ratings. I don't buy from sellers with poor ratings and I won't sell to buyers with poor ratings. It's self policing and it works most of the time. Yes, some fraud exists and it has since eBay started but it's no better or worse than anywhere else.

    Reasons for long term bullishness: FCF machine, paypal, massive growth in Africa, StubHub.

  • Report this Comment On January 15, 2014, at 10:46 PM, NobodysFool2011 wrote:

    @BioBat - You might want to take a course in reading comprehension. It was me who stated that I have never used auctions. The first commentor, PhilipCohen was the one who brought up shill bidding.

    As for "buyer ratings".. (since you're the expert with decades of eBay experience), how does that work now that sellers can only leave positive feedback for buyers? hmmm ? Buyers ONLY have positive ratings. Oh, ok, you use your crystal ball so you "won't sell to buyers with poor ratings"...

    You're Hilarious...

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