How Can eBay Survive the 3-Headed Monster?

Three large companies are entering eBay's turf and could kick its PayPal asset to the curb.

Jun 18, 2014 at 12:00PM

More than half of eBay's (NASDAQ:EBAY) valuation and nearly all of its operating profit is tied to PayPal. But with the company having to contend with the three-headed monster of Facebook (NASDAQ:FB), Apple (NASDAQ:AAPL), and now (NASDAQ:AMZN), investors must think hard to determine if any investment value still exists.

A 2-headed monster
PayPal, eBay's payment-processing service, had annual revenue of $6.6 billion last year with growth of 19% over the year prior. The company creates this revenue by charging a fee when consumers use the service. eBay finished 2013 with 143 million users, up from 123 million in 2012.

Over the last three months, shares of eBay have lost 15%, with both Apple and Facebook preparing to enter the payment-processing industry. This topic has been covered in great detail, and the conclusion is that the pure size of the networks of Apple and Facebook is an enormous threat to eBay.

Apple has more than 600 million iOS users who already have their credit cards stored on iTunes, and Facebook has an unprecedented 1.3 billion global users. Apple and Facebook are both global companies that have a tight grasp on other business – Apple with applications and Facebook with site advertising. eBay investors rightfully remain fearful that both companies could create a service seamlessly and successfully.

With a true slap to the face of eBay, Facebook famously hired its PayPal chief, David Marcus, earlier this month. It does seem that Apple and Facebook are ready and willing to take the $6.6 billion in PayPal's annual revenue, and then some, which could add great value to both stocks.

Here comes the third head!
If eBay's problems weren't dire enough, here comes its biggest competitor,, with a payment-processing push that has already been launched. Earlier this month, Amazon launched a service that allows its 240 million users to use their stored credit card information to pay for services that range from music subscriptions on the site to monthly phone bills. Amazon then collects a fee for the service.

According to Reuters, third-party sales account for 40% of Amazon's total sales. This new service will build a deeper relationship with these vendors and create a payment-processing system for the companies. These vendors may use PayPal as of now, meaning the service could soon spark a price war, something always welcomes.

There's no doubt that is a faster-growing e-commerce company than eBay. However, the one area of strength that eBay investors could always hang their hat on is the company's operating margin of nearly 21% versus 1% for Amazon. As fate would have it, we might soon see these numbers grow more connected, as a price war forces eBay to lose profit from PayPal charges while Amazon benefits from the high-margin payment-processing business.

Foolish thoughts
Whether you believe PayPal will remain the superior service or not, investors have to see the severity of eBay's problem with new competition. Perhaps no metric is more telling than total users.



eBay's PayPal

143 million

Apple's iTunes

600 million-plus


1.28 billion


240 million

Simply put, eBay's ecosystem just doesn't compare to these noted companies, and unfortunately, much of its valuation is tied to the performance of PayPal. eBay investors should be very wary of this three-headed monster that's sneaking up fast, as the combined outcome could be a much lower stock price in the years ahead.

Aside from payment processing, there's another reason your credit card may soon be worthless, and this company will benefit!
The plastic in your wallet is about to go the way of the typewriter, the VCR, and the 8-track tape player. When it does, a handful of investors could stand to get very rich. You can join them -- but you must act now. An eye-opening new presentation reveals the full story on why your credit card is about to be worthless -- and highlights one little-known company sitting at the epicenter of an earth-shaking movement that could hand early investors the kind of profits we haven't seen since the dot-com days. Click here to watch this stunning video.

Brian Nichols owns shares of Apple. The Motley Fool recommends, Apple, eBay, and Facebook. The Motley Fool owns shares of, Apple, eBay, and Facebook. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information