It’s amazing to me that a company like eBay Inc (NASDAQ:EBAY) can continue to post impressive growth. This company along with Amazon.com, Inc. (NASDAQ:AMZN) was one of the first to establish its presence online, and its dominance in the auction space has really never been questioned. When it seemed like eBay was slowing down, the company made an even bigger push with its PayPal unit, which has led to even more impressive growth. Everything seems to be moving in the right direction, but there are two concerns that could change the course of this company.
One thing that is certain is, every retailer has to be able to do business anywhere at any time. Successful businesses like Amazon.com, Google Inc (NASDAQ:GOOG), and Wal-Mart Stores, Inc. (NYSE:WMT) are all where they are because they can do business in multiple ways.
Amazon.com, Inc. (NASDAQ:AMZN) offers customers the ability to buy on their computer, tablet, or smartphone. The business is open 24 hours a day 7 days a week, and ships worldwide. Google is trying to push into commerce through Google Inc (NASDAQ:GOOG) Offers, offering to ship items through local retailers, and with items like the Nexus and Chromebook in retail stores. Wal-Mart Stores, Inc. (NYSE:WMT) has thousands of locations, many are open either 24 hours or have extended hours. Walmart.com also offers thousands of products and ships worldwide.
Of course eBay Inc (NASDAQ:EBAY) is open 24 hours a day 7 days a week, many sellers ship worldwide, and fixed price sales have increased in the last few years. eBay is able to sell on mobile devices just as well as on a PC. The company’s PayPal unit works equally well online and in physical stores. The bottom line is, all of these companies have excellent operations, and millions of customers trust their brands.
What makes this company different?
So if customers are as likely to shop with Amazon.com, Inc. (NASDAQ:AMZN), eBay, Google Inc (NASDAQ:GOOG), or Wal-Mart Stores, Inc. (NYSE:WMT), what makes eBay different? eBay has several strengths that can’t be matched by any of their competitors. First, eBay makes money essentially helping other people sell their stuff. While Google takes part in this through Google Offers, Amazon and Walmart are more traditional retailers. eBay also uses its PayPal unit not only to assist transactions on eBay Inc (NASDAQ:EBAY), but PayPal is now accepted in over 20,000 retail stores.
The second difference is, eBay works perfectly on mobile devices. eBay offers their apps on all major mobile operating systems. The company allows customers to compare prices in stores through their apps. eBay doesn’t have to beat its competition on price, it can allow its sellers to do that.
Third, eBay Inc (NASDAQ:EBAY)’s core growth rate is second only to Amazon.com, Inc. (NASDAQ:AMZN). When comparing companies, I use a measure called core operating cash flow. Core operating cash flow is simply a company’s net income plus depreciation. Using this measure eliminates some of the non-cash adjustments companies make to their cash flow.
Using this measure, only Amazon showed a faster core operating cash flow growth rate of 23.69% over the last year. eBay came in second showing 21.02% growth, compared to 18.22% growth at Google Inc (NASDAQ:GOOG), and 7.01% growth at Wal-Mart Stores, Inc. (NYSE:WMT). Given the fact that investors can buy eBay for a P/E ratio 89% cheaper than Amazon.com, Inc. (NASDAQ:AMZN), and get almost the same cash flow growth is impressive.
These two problems threaten both of eBay’s businesses
The first problem I’ve noticed is with eBay Inc (NASDAQ:EBAY)’s PayPal unit. PayPal is posting impressive growth in accounts, but the number of payments is going the other direction. In fact, in the last five quarters, active account growth has increased from 12% to 16%. In this same timeframe, net payments have decreased almost sequentially from 31% to 23%. With more members and less net payments, PayPal’s growth seems to be slowing down.