eBay Inc (EBAY): The Industry to Watch Out For

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There is no doubt that with every passing day, more and more operations of the retail and banking business are shifting online. The company that I believe can extract the most benefit from this shift is eBay Inc (NASDAQ:EBAY). The company’s strong performance is well replicated in its stock price increase by over 35% in the last year. Let’s see what we can expect with eBay’s second quarter earnings report.

Revenue estimate

According to the analysts at Yahoo! Finance, eBay Inc (NASDAQ:EBAY) is expected to post revenue of $3.89 billion, which, if achieved, would be a 14.5% growth from a year ago figure of $3.40 billion. The company itself estimated its revenue in its first quarter earnings call to be $3.80 billion to $3.90 billion. So, meeting the analysts’ estimates should be well within the comfort zone of the company.

Earnings estimate

In the last four quarters, the company has been consistently beating the consensus estimates by a cent and giving investors small positive surprises for over a year now. For the current quarter, the consensus estimates an earning figure of $0.64, which would be a 14% hike in EPS compared to the same quarter last year.

The analysts estimate higher earnings than the company’s management expectation of $0.61 to $0.63 as reported in their last earnings call. In the first quarter, eBay Inc (NASDAQ:EBAY)’s GAAP operating margin increased to 21.3% from 19.9% from the same period last year. As the margin is improving, achieving the targeted earnings won’t be much trouble for the company.

Strong business

eBay Earnings ReporteBay Inc (NASDAQ:EBAY) is a platform that connects buyers and sellers, hence it does not need to maintain huge inventory and thus saves huge warehousing costs along with other infrastructure and staffing expenditures. The company charges a commission for using its platform which accounts for its revenue. The company’s business has two main segments: the Marketplaces segment and the Payment segment.

The Marketplaces segment had a strong first quarter this year with net revenue surging 13% to $2 billion – driven because of improved customer experience, increased mobile commitment, and robust performance in the clothing, accessories, and home and garden categories.

The margins from the Marketplaces segment improved 340 basis points to 42.1% in the quarter, mainly due to efficient marketing expend. The company has increased investments in the second quarter, but still expects 38% to 42% margin from the segment, which would only improve when the capex finally starts delivering.

The e-payment king

PayPal has grown profoundly and is well ahead other players who provide similar payment platforms. Last year, PayPal’s active account growth increased to 15%, and in all had 123 million digital wallets. PayPal mobile handled $14 billion in payment volume in 2012, and is expected to handle $20 billion in mobile payments volumes this year, making it clearly evident that the company is all set to be the future of mobile payment. Further, as per Morningstar, over 60 out of 100 online retailers in the U.S. accept PayPal, and, with time, more merchants and retail stores should join PayPal, making it stronger.

Future growth

eBay Inc (NASDAQ:EBAY) has penetrated the U.S. market and has its presence in more than 40 countries. E-commerce is not that recognized of a concept in other countries, which should eventually change radically in the subsequent five years with the growth of middle-class population in the emerging countries.

The company understands the importance of global market and has thus acquired 2dehands.be and 2ememain.be, two of the biggest online sites in Belgium. It has also entered in a deal to buy SnapDeal.com, India’s newest online marketplace, substantiating eBay Inc (NASDAQ:EBAY)’s intentions, which is to become a leader in e-commerce in emerging markets.

Competition

Amazon.com, Inc. (NASDAQ:AMZN), is the true competitor of eBay Inc (NASDAQ:EBAY) because it is also used by top retail stores in the U.S. for their online transactions. Over the years of exquisite performance, Amazon has gained the trust of the top players in the industry.

Amazon.com, Inc. (NASDAQ:AMZN), too, acknowledges the importance of international expansion and is entering new markets, Amazon Prime and Amazon Web Services being the perfect example of its diversification projects.

Amazon.com, Inc. (NASDAQ:AMZN), over time, has taken away many of the traditional business from the brick and mortar retailers. In the span of last ten years, the company has diversified into different segments such as music, games, e-readers, etc. to broaden its horizon.

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