Users of eBay Inc (NASDAQ:EBAY) have noticed something interesting that value investors should be paying attention to. The Internet staple has transformed itself from a questionable and, at times, sleazy auction site into a genuine online marketplace reminiscent of Amazon.com, Inc. (NASDAQ:AMZN).
eBay’s New Sources of Cash
In the past few years eBay Inc (NASDAQ:EBAY) has been implementing all sorts of new programs that make it easier to sell stuff through the site. A prime example of these programs is the Global Shipping Program, which enables a person to ship items to many foreign destinations at the same cost as shipping in the U.S.
That would let a comic book store owner in Topeka ship an old issue of Spider-man to a collector in Glasgow, Scotland, for the same price as shipping to Los Angeles. The program takes care of the customs and other hassle. All the comic-store owner has to do is click the box for Global Shipping Program when he sets up his listing to dramatically increase the number of potential customers.
That greatly increases the market for a lot of products and small businesses. It also increases the potential cash flow for eBay Inc (NASDAQ:EBAY) by increasing the number of fees that it can charge.
Global Shipping is only one of several new programs eBay has set up in its effort to turn itself into a retail marketplace—a sort of global flea market, where almost everything is for sale. There’s also eBay Giving Works, which lets sellers donate a portion of their profits to charity. That enables thrift stores and other good causes to sell through eBay and increase their potential take while helping eBay make a profit.
eBay Programs = Cash
Is eBay Inc (NASDAQ:EBAY)’s new strategy actually working and bringing in more cash? So far the answer seems to be yes. Between December 2010 and March 2013, eBay’s revenues rose from $9.156 billion to $14.54 billion, an increase of over $6 billion in less than three years. In the same period eBay’s cash from operations increased from $2.746 billion to $4.24 billion.
There is one worrying, or rather interesting, indicator though: eBay Inc (NASDAQ:EBAY)’s free cash flow peaked at $1.089 billion in December 2012 then fell to $638 million in March 2013. That indicates eBay is behaving more like a traditional retailer with heavy dependence on Christmas shopping. eBay’s free cash flow fell by almost half in just two months.
This isn’t as bad as it looks, because the company that most resembles eBay Inc (NASDAQ:EBAY)—Amazon.com—saw its free cash flow fall from $3.055 billion in December 2012 to $3.04 billion in March 2013. The company was actually reporting extra cash at a time when Amazon.com, Inc. (NASDAQ:AMZN) was reporting negative cash flow.