6 Reasons Why You Should Love eBay Inc (EBAY)

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eBay Inc (NASDAQ:EBAY) has been on an incredible run in the last year. During this time, shares have outperformed the Nasdaq Composite Index by nearly 50% as the company signaled to investors that it’s successfully capitalizing on the mobile computing revolution. Additionally, eBay is in a strong position to continue growing all of its major business segments as it continues to build out its global commerce platform. Together, these factors have given investors good reason to justify a seemingly high P/E ratio of 27.

eBay Inc (NASDAQ:EBAY)1. A strong core

Segment Q4 2012 Revenue Change (YOY) Percent of Total
Payments $1,541 24% 39%
Marketplaces $2,050 16% 51%
GSI $398 10% 10%

Source: eBay quarterly earnings press release. All dollar figures are in millions.

Over the past year, eBay enabled over $175 billion of commerce activity, representing nearly 20% of the total e-commerce market. In terms of the global retail market, this volume only made up of 2% of the total, indicating that eBay has a lot of untapped growth potential around the world.

Marketplaces, eBay’s core business, has undergone a complete transformation over the last five years as auctions went from 70% of listings to only 30% of listings. In the future, eBay CEO John Donahoe expects auctions to continue losing ground to fixed-price listings as eBay continues prove its worth as an incremental distribution channel for businesses. In particular, eBay’s fashion outlet concept has seen increased adoption by many major name brands, and has helped drive fashion to become the most shopped for category on a mobile device. It’s become so popular that the company has developed a stand-alone eBay Fashion mobile app.

2. BRICs, baby!
Today, there are approximately 2 billion Internet users, a number that’s expected to double in the next three to five years. About 80% of these up-and-coming Internet users will come from the BRIC nations — Brazil, Russia, India, and China. Naturally, these markets offer huge growth potential for eBay’s businesses, especially for mobile growth because the majority of these new Internet users will first experience the Internet over a mobile device.

Currently, eBay is the largest e-commerce company in Russia, yet the company doesn’t even have a Russian eBay site! Later this year, eBay will release a Russia-specific site, which is part of the company’s larger effort to make it easier for buyers and sellers all over the world. In other words, this whole emerging market growth story everyone is talking about is still within the early stages for eBay.

3. No conflict of interest
Unlike Amazon.com, Inc. (NASDAQ:AMZN), eBay doesn’t sell goods alongside its network of sellers. eBay merely provides a platform for buyers and sellers to conduct commerce, which eliminates the conflict of interest Amazon’s two-sided business model poses. Amazon is both the platform and the retailer, and that threatens a smaller business’ ability to compete against Amazon’s massive economy of scale.

4. Payments
PayPal is the current leader in online payments and the company is trying to replicate some of that success in the offline world. The deal between PayPal and Discover Financial Services (NYSE:DFS) is expected to go live during the second quarter of this year, giving PayPal access to 7 million merchant locations across the U.S. For PayPal’s entire business to double, it only has to capture just 1% of the point-of-sale market. To say that offline payments are a massive opportunity for PayPal would be an understatement.

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