A Company to Watch in 2014

With hot technology names like Facebook, Twitter, Amazon (NASDAQ: AMZN  ) , and Netflix trading at valuations resembling those seen in 1999, it's easy to make the case that tech stocks have effectively priced in future expectations. However, it is still possible to find value plays in the technology space.

eBay (NASDAQ: EBAY  ) is a well-known tech name that, similar to Amazon, earns money by providing an online marketplace where both retailers and average consumers can sell their goods. Unlike Amazon, however, eBay actually turns a consistent profit and, in fact, grew its bottom line 16% in the most recent quarter.

The turnaround tale
CEO John Donahoe has been quietly transitioning the company into something that more closely resembles Amazon. 70% of eBay transactions are completed using the "Buy it Now" feature of the web-based marketplace, highlighting the company's renewed focus on career sellers. These sellers not only provide a much more consistent revenue stream for eBay, but also generally put more effort into their product postings, making the eBay shopping experience more pleasant for customers.

In addition, eBay does not stock and sell its own products the way Amazon does, making it a non-competing partner for third-party sellers. These transitions, as well as other tools such as sitewide shipping solutions, mean eBay could continue to pressure Amazon as a competitor and reclaim market share that was lost during Meg Whitman's reign.

Continued growth
eBay also owns PayPal, which, despite contributing 50% of all revenue, only accounts for 35% of the company's net earnings. The payment solutions service continues to gain popularity in the U.S., where penetration still remains relatively low despite the brand's status as a household name. The service should see rapid growth in the near future, as the company continually works with retailers to integrate systems allowing customers to use PayPal via smartphone apps to pay for purchases made in physical stores. Where almost all U.S. shoppers recognize Visa, MasterCard, Discover, and American Express as the big four in credit/debit payment solutions, PayPal is working to become the first widely known name in digital payment solutions.

With companies like Cisco and Qualcomm continually discussing "the Internet of Everything," being the first to facilitate digital solutions could make PayPal an even more valuable asset for eBay as either a continued source of growth or a potential acquisition target. In either case, it is fair to say that Donahoe has recognized where PayPal may fit into a relatively futuristic idea, and is positioning the product well to capitalize on these developments.

Conclusion
The combined force of a rejuvenated eBay, as well as PayPal's continually developing payment solution systems, has analysts estimating earnings growth of more than 15%. Applying a current multiple of 16 times to year-end 2014 earnings of $3.75 per share leads to a price target of $60, representing a 15% gain from a recent price of $52 per share. 

Amazon has seen its stock price nearly double in the last year, despite still failing to produce a consistent profit. Amazon has, arguably, one of the best CEOs from the last decade, a highly competitive retail strategy, and brilliant products that continue to fuel long-term, innovative growth. However, as a value investor, the prospect of infinitely high pricing metrics continually provides reason for extreme hesitation when considering a purchase of Amazon stock.

For those more focused on growth, Amazon provides a potentially meteoric rise. For those more focused on long-term returns, eBay fits the bill as a great company available at a fair price.

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