For the past two years, eBay Inc (NASDAQ:EBAY) has managed to meet or beat analysts’ earnings estimates in each and every quarter, in most cases coming ahead on the upper end of the estimates. This, coupled the 55% uptrend in its stock over the past 12 months, has stirred a lot of growth disposed write-ups on the online retail big wig. In my opinion, eBay Inc (NASDAQ:EBAY)’s growth story has been overdone. If anything, what we are seeing today is what many would call the tip of the iceberg. I believe that the company’s growth story is just beginning; there is still much more to come.
PayPal key impetus behind growth
PayPal’s role in eBay Inc (NASDAQ:EBAY)’s future growth cannot be overlooked. In the past quarter, sales from the PayPal unit grew 18% to $1.5 billion. And in fiscal 2012, PayPal accounted for 15% of the 1 trillion e-commerce transactions, processing transactions totaling to $145 billion.
Why do I argue that PayPal will be the key force behind growth? PayPal is latching on to the formidable mobile uptrend in the world. It is riding on the waves of smartphone and tablet growth and in the process, gaining immensely. Of the 5 million users it added in the quarter ended March, 2.8 million were added through mobile. Putting this into perspective, more than half, or at least 50%, of new PayPal users were roped in through mobile. This is of course not to mention existing users who chose to switch from PC to mobile.
During the company’s earnings, eBay Inc (NASDAQ:EBAY) chief executive John Donahoe reiterated the company’s solid stance on mobile. Donahoe made it clear that the company would place its focus on opportunities in mobile technology, citing the importance of enhancing consumer engagement anywhere regardless of location.
Is this renewed focus on mobile a good thing for eBay Inc (NASDAQ:EBAY)? I believe it is. Here is why I say this.
U.S online retail, along with online retail in other developed economies, is expected to grow moving forward. Forrester expects U.S online retail sales to hit $370 billion by 2017, up from $231 billion in 2013. This essentially translates into a 10% compound annual growth rate. However, the fashion in which people are accessing the internet, or going online if you will, is changing. PCs are becoming less and less popular as consumers tend toward tablets and smartphones. Tablet sales have been rising while PC sales have been thinning. In fact, industry specialists contend that tablet sales will outpace PC sales this year; with tablets shipments expected to reach 240 million units compared with PCs 207 million units. Smartphone sales on the other hand have for the first time outpaced feature phone sales, contributing to 51.6% of the global mobile phone sales according to IDC.
This uptrend in mobile devices will be a game changer for companies that operate online. As such, eBay Inc (NASDAQ:EBAY)’s renewed focus on mobile will be instrumental in growing its PayPal business moving forward.
Warding off competition
Amazon.com, Inc. (NASDAQ:AMZN) remains eBay’s key competitor. The company has seen a lot of capital outlay as its steps up its bid to widen its brick and mortar footprint in the country. The mushrooming of distribution warehouses throughout the country will help the company enhance delivery for its customers.