eBay Inc (EBAY) Taps New Streams of Cash

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What’s more interesting is the way that Mr. Market values eBay and Amazon.com, Inc. (NASDAQ:AMZN). On July 12, 2013, Amazon was trading at $302.91 and eBay at $55.27. The latter looks like a bargain because it has demonstrated that it can maintain constant cash flow and Amazon cannot.

The PayPal Question

There is an interesting problem with eBay Inc (NASDAQ:EBAY) though: how much of its profits are really coming from its subsidiary, PayPal. Ownership of PayPal means that you can categorize eBay as a financial services company as well as a retailer. PayPal has been moving aggressively into new areas such as credit cards, mobile commerce, and financial services for brick and mortar retailers.

If PayPal is carrying the load for eBay, what happens if it gets spun off in an IPO or sold to a financial services company? How much of eBay’s cash flow is coming from PayPal, which operates year round? Retailing is a seasonal business—as Amazon’s cash numbers prove—while financial services hold steady year round.

The question we need to ask ourselves is this: Can eBay survive or at least be taken seriously as a retailer without PayPal? That’s hard to answer because PayPal is an integral part of eBay’s current business strategy.

The best answer is that if eBay Inc (NASDAQ:EBAY) retains PayPal and keeps on its current course, it can create a serious online marketplace that is a credible alternative and a real threat to Amazon. This marketplace will also be a real value investment because, unlike Amazon, it will generate a steady cash flow.

The article eBay Taps New Streams of Cash originally appeared on Fool.com and is written by Daniel Jennings.

Daniel Jennings has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and eBay. The Motley Fool owns shares of Amazon.com and eBay. Daniel 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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