Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

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, 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 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.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.