Why eBay Inc (EBAY) Is A Great Buy

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Fourth-quarter revenue of eBay Inc (NASDAQ:EBAY) climbed 18% year-over-year to $3.99 billion, helped by record holiday sales. That exceeded the average analysts’ estimate of $3.98 billion, reports Bloomberg.

The stock price has risen by almost 80% in the past one year. Increased mobile engagement fueled by “Marketplace” improvements led the company register unexpected revenue growth. I expect the momentum will continue and eBay’s stock will witness further gains in 2013.

eBay Inc (NASDAQ:EBAY)Canaccord Genuity’s Michael Graham believes that eBay has substantial room for revenue growth.

“While at least some of the low-hanging fruit on the GMV tree has been harvested (improved search/product discovery, user growth driven by mobile) we believe there is still more room to go, both with existing programs (vertical shopping categories, third-party storefronts, product recommendation engine, customizable feeds) and unannounced but potentially logical ones (more comprehensive product availability).”

Factors that will Drive eBay’s Future Revenue Growth

  1. Mobile Users: CEO of eBay John Donahoe said that he’s continuing his efforts to make sure users are buying on smartphones and tablets. Mobile users tend to complete purchases more often than those browsing on desktop computers. Mobile garners a quarter of new customers, drawing a younger demographic to the site, he said.
  2. Marketplace: The next round of growth is expected to come from the strong performance of eBay’s “Marketplace” business. “Marketplace” contributes slightly more than half of eBay’s total revenue. Traffic from mobile devices is the major contributor within marketplaces. With sellers now listing 2 million items per week from their smartphones on eBay, I expect the gross merchandise volume and the number of active users will continue to grow over the medium-term.
  3. PayPal: PayPal accounts for about 40% of eBay’s total revenue. The outstanding growth prospect of PayPal will lead to more revenue growth. This division registered decent growth of about 25% during 2012 with the international business outpacing overall growth. With PayPal still having a limited international presence, there is tremendous scope for further expansion.

Electronic Retail Expected to Replace Physical Retail

The rate of electronic retail shopping is expected to increase significantly over the next four to five years. To take advantage of this growing trend, retailers need to identify the best possible means of benefiting from the use of technology in shopping while implementing relevant strategies.

This growing trend has guided major U.S. retail chains to downsize their physical retail operations, and in turn, develop their e-commerce and m-commerce sites to attract customers.

Discount retail chains like Wal-Mart Stores, Inc. (NYSE:WMT), Target Corporation (NYSE:TGT) and beleaguered consumer electronics retailer, Best Buy Co., Inc. (NYSE:BBY) have announced that they will offer their patrons the facility to match the prices being offered at Amazon.com, Inc. (NASDAQ:AMZN) and eBay.com.

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