eBay Inc (NASDAQ:EBAY), the parent company of PayPal is remarkably well positioned to benefit from the structural shift in retail to omni channel solutions. Management is expecting ECV (e-commerce volume) to increase from $175 billion 2012 to ~$300 billion in 2015 with mobile ECV growing 3x faster than overall ECV. The company is targeting 15-19% EPS growth, and now is a good time to ponder future growth. The ECV market is going to continue growing at rapid paces as online commerce currently accounts for only $1 trillion of the entire commerce market. I say “only” because the pace of growth has been impressive and obvious for the past few years, and will only grow from here.
Doing everything right
PayPal’s non-FDIC-insured account can replace the need for a bank. In addition, PayPal Credit (via Bill Me Later) replaces your need to rely on major credit cards while also offering consumer loans. These are some of the reasons why PayPal’s 123 million user base is still growing at a rate of around 1 million new users per month, towards the company’s longer term goals of reaching 200 million users.
David vs Goliath?
Traditional credit card retailers like Visa Inc (NYSE:V) are still the giants in the industry. Visa has 1.7 billion credit and debit accounts, but are behind in the online shopping world. According to ComScore’s digital wallet study over 50% of those surveyed have heard of PayPal, but less than 13% have heard of Visa Inc (NYSE:V)’s vendor solution Square. The survey goes on to conclude that “low awareness, understand of benefits, and availability among retailers are among the key barriers to adoption of digital wallets”. What is Visa Inc (NYSE:V)’s loss is PayPal’s gain, as the entry barriers to reach such stature are significant. PayPal holds the advantage of being the first to the market and is at the forefront of a booming e-commerce industry in terms of brand and scale. In terms of overall users, PayPal (the David) is losing big time to Goliath(Visa) but investors need to consider future guidance and growth potential that eBay is putting out.
So what are the guidance numbers?
The company initiated earnings growth guidance of 15-19% per year over the 2012-2015 period. This implies EPS of about $3.60-$4.00 in 2015. In addition, cumulative free cash flow is expected to exceed $11 billion by 2015. Looking at the numbers, eBay Inc (NASDAQ:EBAY) ended 1Q’13 with $4.5 billion in debt, and $12.6 billion in cash. Given the earnings growth, the free cash flow production, the strong balance sheet, eBay Inc (NASDAQ:EBAY) will be in great position to deliver shareholder value over the coming years.
So where exactly are the shares going? There is some math involved to answer on this one. The top end of management’s 2015 EPS guidance equals approximately $4.00 a 20x P/E multiple justifies a ~$80 share. I can’t think of any other way to profit from a booming e-commerce trend than investment in eBay Inc (NASDAQ:EBAY). $80 a share is a completely realistic outcome over the next few years based on tremendous growth prospect
The article Why I Think eBay Will Trade Above $80 Per Share originally appeared on Fool.com and is written by Jayson Derrick.
Jayson Derrick has no position in any stocks mentioned. The Motley Fool recommends eBay and Visa. The Motley Fool owns shares of eBay. Jayson is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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