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eBay Stock Gets Charged Up: What Investors Need to Know

By Tamara Walsh - Apr 12, 2013 at 4:08PM

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Why eBay stock could surge in the week ahead.

Investors with eBay (EBAY 5.06%) stock in their portfolios will be happy to know that PayPal's long-awaited deal with Discover Financial Services (DFS 1.28%) officially launches next week. As soon as next Friday, April 19, PayPal's digital payments platform will officially be available to 2 million U.S. retailers that currently accept Discover credit cards.

When PayPal and Discover first announced this partnership last year, PayPal was only available in about 3,000 U.S. stores, most of which were Home Depot (HD 1.87%) locations. This means that as of next week, PayPal's footprint will more than double in size -- seemingly overnight.

Growth in eBay's PayPal business should push eBay stock higher, particularly because PayPal makes up about 40% of eBay's revenue. Moreover, by leveraging Discover's broad network of merchants, eBay could see its mobile transaction volume hit record highs this year.

Mobile money wars
eBay began testing its PayPal point-of-sale service more than a year ago at thousands of Home Depot stores around the country. Together with Home Depot, PayPal is finding new ways to entice in-store customers to pay with its point-of-sale service. "Home Depot and PayPal have run several promotions in recent months, offering $5, $10 or $25 rewards to users who spend a certain amount in-store with PayPal," Reuters reports.

One of the major upsides for retailers and stores such as Home Depot is the fact that PayPal's system operates at a lower transaction cost compared to traditional electronic terminals. Still, eBay isn't the only company vying for a piece of the roughly $10 trillion physical payment market. eBay's PayPal faces competition in the space from big names including Starbucks' Square service, and Google Wallet.

However, PayPal's reputation as the trusted leader in online payments is one advantage it has over Google in the space. Additionally, PayPal hopes to further set itself apart from the competition by offering merchants valuable customer data, according to Reuters.

Ultimately, if PayPal's point-of-sale initiatives catch on, it would be a boon to eBay stock. Shares of eBay are up more than 12% year to date, and the stock is trading at around $57 per share. However, thanks to its PayPal business, I think eBay stock can continue to climb higher from here.

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Stocks Mentioned

eBay Inc. Stock Quote
eBay Inc.
$48.82 (5.06%) $2.35
Discover Financial Services Stock Quote
Discover Financial Services
$112.20 (1.28%) $1.42
The Home Depot, Inc. Stock Quote
The Home Depot, Inc.
$308.46 (1.87%) $5.65

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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