eBay Q2 Earnings Preview: What We’re Watching

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eBay (NASDAQ:EBAY) is expected to announce its Q2 2011 earnings results on 20th July 2011. For this quarter, we would keep a close eye on growth in the company’s payment transaction business i.e. PayPal, which has shown robust growth both in average deal sizes as well as increased adoption of PayPal as the preferred mode of online payment. eBay competes with other e-commerce sites like Amazon (NASDAQ:AMZN), Wal-Mart (NYSE:WMT) and Overstock (NASDAQ:OSTK).

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Our price estimate for eBay stock, at $32.75 is in line with the current market price.

Mobile Payments to Drive Future Growth

Total value of mobile payments is expected to reach about $670 billion by 2015 from $240 billion by 2011, [1] driven by increasing needs for financial access especially in emerging markets. eBay’s recent acquisition of mobile-payment start-up Zong emphasizes the same trend. [2] Given that PayPal significantly grew in Total Payments Volume (TPV) by about 28% in Q1 2011 over last year, we expect increased acquisition activity to drive the number of PayPal accounts upwards for Q2 2011.

Larger Merchants Should Combat Competition but Reduce Take Rate

In its Q1 2011 earnings release, eBay indicated lower take rates (average % commission made by PayPal on each transaction) on its payment transactions primarily driven by a shift to larger merchants. eBay’s recent acquisition of GSI Commerce points to the same trend in future. [3]

GSI Commerce is an e-commerce company and has long-term relationships with brands and retailers such as Toys “R” Us. Consistent with our earlier note on the potential effect of eBay’s acquisition of GSI Commerce, we expect merchandise listings to increase in future given the increasing mix of merchants of all sizes on the site. However, with an increased proportion of large-size merchants and increased operating expenses in the near-term, we expect a modest decline in both transaction take rate and EBITDA margin for eBay’s Marketplaces in the coming quarter.

See our full analysis and for eBay

Notes:
  1. Value of Mobile Payments to Nearly Triple by 2015, Hitting $670B []
  2. Bloomberg: EBay’s Zong Takeover Has Google Vying With AmEx to Make Deals []
  3. Bloomberg: EBay Agrees to Acquire GSI Commerce for About $2.4 Billion []