When it comes to investing, knowing when to buy, sell, or hold a stock can mean the difference between earning money and losing it in the market. However, making the best decisions for your investments can be challenging. Fortunately, you can minimize risk by weighing both the pros and cons of a given stock before deciding how to act. Today, we'll take a closer look at eBay
In the past, it was eBay's payment service PayPal that carried the team. However, business has really picked up recently in the company's online auction segment, which in the last quarter delivered its strongest growth in years. Both the online marketplace and PayPal divisions should continue to benefit from the company's aggressive push into mobile commerce.
eBay CEO John Donahoe now expects that PayPal and eBay mobile together will conduct about $20 billion in volume this year. For reference, that's more than double the company's 2011 figures. In addition, PayPal is growing its digital-payments program through smart initiatives such as adding new merchants to its point-of-sale program, as well as, a new joint venture with SoftBank in Japan.
In its second quarter, eBay's PayPal counted more than 113 million active registered accounts worldwide. This 13% increase in users from the year-ago period helped boost revenue for PayPal by 26% year over year. The mobile-payments market is on track to grow at a 68% compounded annualized rate over the next five years. If PayPal maintains its prime position in the space, it could rain down profits on eBay for years to come.
Of course, eBay shares are not without risk. Increased competition in the mobile-payments space could threaten PayPal's lead.
Despite eBay's strong earnings in recent quarters, the mobile frontier is still in its infancy. There are a lot of kinks that need to be worked out before the majority of consumers will be comfortable making purchases through an online platform such as PayPal or similar options such as Google Wallet, which rely on near-field communication technology.
In addition, eBay's namesake marketplace business faces increased competition from the world's largest online retailer. Similar to eBay, Amazon lets consumers buy and sell merchandise of all shapes and sizes on its site. However, Amazon's push to offer same-day delivery could lure customers away from eBay.
To counter this move, eBay is now testing a service that it's calling "eBay Now." According to TechCrunch, the test run, which features same-day shipping from select retailers including Best Buy, Target, and Macy's, is currently being offered in San Francisco. In theory, this sounds like a winning idea. However, contending with Amazon's nationwide logistics operations won't be easy. That's because Amazon's gigantic distribution centers, which are located throughout major U.S. cities, act as a competitive advantage in terms of getting products to customers in record time.
Companies such as Amazon and eBay are changing the way we shop. Since eBay is heavily invested in mobile commerce, more conservative investors may prefer to sit on the sidelines for now, at least until this market matures a bit.
What's an investor to do?
Competition from Google, Amazon, and Apple in the payments space shouldn't be ignored. However, eBay has the necessary resources to remain competitive in both its marketplace business and payment services division. In March, I urged investors to bet big on eBay as it rode PayPal's momentum higher. Today, the company is firing on all cylinders.
If the PayPal division stays on its current trajectory, it should post tremendous growth in the quarters to come. For these reasons, I think eBay is a buy today, which is why I'm giving the stock a three-year outperform rating on my profile in Motley Fool CAPS.
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Fool contributor Tamara Rutter owns shares of eBay, Amazon, and Apple. Follow her on Twitter, where she uses the handle @TamaraRutter, for more Foolish insights and investing advice. The Motley Fool owns shares of Google, Amazon.com, and Apple. Motley Fool newsletter services have recommended buying shares of Apple, eBay, Google, and Amazon.com and creating a bull call spread position in Apple. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.