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eBay Inc (EBAY): Its Long Term Bet

“India is one of the world’s most promising and problematic Internet markets,” wrote Brad Stone and Kartikay Mehrotra in a recent Businessweek article. They’re spot on. The combination of very undeveloped Internet and e-commerce infrastructure; adoption of Internet-connected devices in droves; and a massive population of 1 billion people all set the stage for opportunity — albeit with significant risk. eBay Inc (NASDAQ:EBAY) thinks it can buck system, but it may take a while.

eBay Earnings ReportThe market
About 100 million people in India, or 10% of the population, use the Internet. The market opportunity for companies willing to jump into the country’s Internet space, therefore, is a whopping 900 million. But there’s no reason to get too excited; much of this market is far from ready to adopt Internet-connected devices. Though wages are on the rise, growing 11% last year, the average per capita income is still just $106 per month. Furthermore, though 100 million people in India use the Internet, only 10 million of these individuals have access to high-speed Internet. Finally, India doesn’t have a national shipping company, severely limiting e-commerce efforts.

The investment
Snapdeal.com, one of India’s fastest-growing e-commerce sites, has managed to carve out its own eBay-like niche, connecting 10,000 small merchants in India. Snapdeal’s CEO Kunal Bahl claims that the site has 20 million registered users and gets 1 million visits a day.

The company caught the attention of eBay Inc (NASDAQ:EBAY) in 2010, when Snapdeal transitioned from a daily deal website to an online product market place. Though eBay hasn’t made any official statements on its investments in the company, most sources speculate that eBay’s recent co-investment of $50 million in the company reported by Reuters on April 9 wasn’t the first eBay has made.

The opportunity
Though India’s e-commerce market has problems, it should pay off handsomely for eBay Inc (NASDAQ:EBAY) investors over the long haul. In other words, risk should be compensated by massive growth and eventual profits. For instance, the company expects to do $300 million in gross merchandise volume in this fiscal year, and it expects to hit $1 billion by 2015.

It will likely take a very long time, however, for eBay Inc (NASDAQ:EBAY) to see a satisfactory return on the investment. In fact, there’s a good chance the investment will lose money for quite some time. According to Reuters, Indian e-commerce experts assert that Indian e-commerce is burning more cash than it’s taking in. Furthermore, it’s still unclear whether the inventory or marketplace model for e-commerce is the best route.

The article eBay’s Very Long-Term Bet originally appeared on Fool.com.

Fool contributor Daniel Sparks has no position in any stocks mentioned. The Motley Fool recommends eBay Inc (NASDAQ:EBAY). The Motley Fool owns shares of eBay.

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