EBay Inc. (NYSE:EBAY), which is best
known for its e-commerce platform eBay.com and its online payments gateway
PayPal, has had a disappointing holiday season, with same-store sales lagging
behind those of Amazon (AMZN). The company's performance has been generally
poorer than Amazon's and falls short of industry growth.
However, the company
has also been in the news for acquisition of Braintree for its subsidiary
PayPal. Though this will probably have no positive impact on eBay's indices for
2013, analysts
generally agree that this will prove invaluable as the company seeks to tap
into the growth of mobile payments. Further, eBay has been showing tremendous
growth in international markets. These factors coupled with a decent balance
sheet (though lagging behind industry growth as mentioned above) reflect that
the company has ample growth potential going forward.
Disappointing
December sales
A ChannelAdvisor report published recently
showed that compared to the same period last year eBay same store holiday sales
rose by 9.6% while Amazon's progress in the same time period was 25.2%. More
specifically between 16th and 22nd eBay's same store sales rose 18.1% to
Amazon's 38.9%. This gap between the two key players in the online retail segment
can be seen in YTD returns as well where Amazon's impressive 54.92% YTD returns
easily overwhelm eBay's 7.46% YTD returns.
PayPal, Braintree
and the mobile future
About 45% of eBay's
value comes from its
subsidiary payments portal PayPal. PayPal has been showing steady growth in
number of active accounts with about 5 million accounts being added every quarter
of 2013. Revenue growth has been in the range of 18-20%. While average payment size
has fallen, the sheer volume of transactions has more than made up for it.
As one would have
guessed, this growth reflects the success of e-commerce in general. This e-commerce development has allowed another web
and payment processing company, Braintree, to rise to prominence. More
specifically, the company acquired Venmo, which is a mobile payment solution
that allows people to send money to others for free. With the $800 million
acquisition of Braintree, PayPal will, therefore, be able to use the rapidly growing customer base (currently around 40 million) of Venmo to expand its
mobile payment facilities. This will give PayPal a commanding position in
mobile payments industry that is expected to grow by 63% (according to the
Internet Retailer 2014 Mobile 500 report) by the end of 2013 when compared to
what it was at the end of 2012.
EBay's
international moves
EBay's revenue from
international markets grew by 14% in the first three quarters of 2013 as the
Eurozone and UK emerged gradually from the recession. EBay's global revenues had
grown from $4.6 billion in 2008 to $7.3 billion in 2012. From this perspective
the company's deal with Argos, through which customers buying goods online will
be able to pick up their deliveries from Argos stores, appears to be a highly
strategic move. Further, eBay is confident of growth in Asian markets and is
set to benefit from the $50 million investment in Indian online shopping portal
Snapdeal.
The balance sheet
EBay's earnings growth has been mixed
while YoY revenue growth has stayed in the range of 14-14.40% for the first
three quarters of 2013. Further, the company's YTD return of 7.46% is not only
below Amazon's, but also lower than those of the sector (33.89%). EBay's debt
to equity ratio stands at 0.20, which is relatively low but higher than the
industry average. Net operating cash flow growth of 15.59% is also below the
industry average growth rate of 23.64%.
However, it should
be noted that these figures are in themselves not dismal. Rather, when we
consider the good growth prospects generated by the above developments it
becomes clear that eBay is poised to make good use of this balance sheet to ensure decent growth next year.
The above analysis
shows that eBay's performance has not been on par with Amazon, and its balance
sheet is not one that outshines the industry averages. However, the acquisition
of Braintree, partnership with Argos and investment in Snapdeal, to name a few,
should drive the company's growth in the coming years. As such, while eBay is a
comparatively poor performer, for the sector it is by no means a bad one.Investors who have already bought into the company's stock would be, therefore,
advised to "hold" while those who do not have eBay in their portfolio
may consider alternatives before buying into the company's stock.
Author: Justin Martin
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