2 Are Better Than 1: eBay Inc (EBAY), Target Corporation (TGT), Facebook Inc (FB)

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eBay Earnings ReportIt’s no secret that eBay Inc (NASDAQ:EBAY) has done an amazing job not only growing their traditional business, but also expanding their PayPal division as well. When it comes to online sales, the two most recognized names are Amazon.com, Inc. (NASDAQ:AMZN) and eBay. eBay’s results speak for themselves, but there is a problem–there is value in PayPal that is likely not reflected as a part of eBay. The bottom line is that eBay and PayPal need to split.

Online Shopping Is Continually Changing
While Amazon and eBay Inc (NASDAQ:EBAY) have already survived the deluge of online shops that sprang up during the dot.com bubble, they face a new breed of competition today. Some are companies they know, others are new entrants. A good example of a competitor they have dealt with for a while is Target Corporation (NYSE:TGT).

Target Corporation (NYSE:TGT) continually updates their selection and offers exclusive deals to compete with online merchants. One way the company is attempting to differentiate themselves is through their REDcard. The REDcard comes in both credit and debit flavors, and carries three big benefits that eBay Inc (NASDAQ:EBAY) and Amazon can’t match. First, customers get 5% off their purchases both in store and online. Second, you get an extra 30 days for returns. Third, and maybe most important, Target.com purchases ship for free.

A newer entrant into the online shopping arena is Facebook Inc (NASDAQ:FB). Though the company is still seen as primarily a social site, Facebook Inc (NASDAQ:FB) Gifts has the potential to be a major disruptive force in online shopping. Many people use Facebook Inc (NASDAQ:FB)k to remember their family and friend’s birthdays. If users can order them a gift from the same site, the option might be too easy to ignore. With gifts available from candy, to wine, to toys, the selection is appealing. The fact that your friend is notified instantly makes last minute gift giving no problem. With over 1 billion users, there are millions of birthday wishes being posted, which means that if Facebook only captures a small portion of sales through Facebook Inc (NASDAQ:FB) Gifts, every other retailer better be aware of this new threat.

What Makes eBay Inc (NASDAQ:EBAY) Different?
Part of what makes eBay different is that the site is a bargain hunter’s dream. Small businesses can sell their wares to an audience of millions, and individuals can sell unwanted items. In that situation, retailers of all stripes have no chance of competing on price. eBay Marketplace is still growing at a good clip, with active accounts up 12%, and gross merchandise sales up 19% in the current quarter.

The other big difference between eBay and other sites is PayPal. The service is so integrated into the website that many people have never completed an eBay transaction without PayPal. This division now has 123 million registered users, and payment volume jumped 24% in the current quarter.

Here’s The Problem
As great as these two businesses are, it seems they would be worth more as two separate entities. eBay trades for about 20.8 times projected earnings, with a 14.6% expected growth rate in EPS over the next few years. In the last five quarters, eBay’s Marketplace division has grown revenue by between 10% and 16%, and active users have grown by 6% to 12% in the same timeframe.

PayPal is on a different growth trajectory. This division is growing revenue by 22% to 29% over the last few quarters. In addition, PayPal’s user growth is faster, with rates of 12% to 15% in the last year or so.

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