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Investment Overview for eBay (NASDAQ:EBAY)
Below are key drivers of eBay's value that present opportunities for upside or downside to the current Trefis price estimate for eBay:
- eBay Transaction Take Rate: We currently forecast the take rate, eBay's commission on items sold, to decrease from about 8.06% in 2012 to 7.36% by the end of the our forecast period. There could be a 5-10% upside to our price estimate if the take rate were to increase to 9% instead.
- Marketplaces EBITDA Margin: We currently forecast marketplaces margin to stay flat at current levels of about 41%. However, there could be more than 5% upside to our price estimate if margins were to rebound to 2008 levels of about 46.9%. On the other hand, there could be a 5% downside to our price estimate if margins continued falling, reaching 35% by the end of our forecast period.
- Annual Number of Payments per PayPal Account: We currently forecast that the average number of payments per PayPal account will steadily grow to 30 by the end of our forecast period. There could be 10% upside to our price estimate if this figure increases to 40 instead. On the other hand, there could be 5-10% downside to our price estimate if payments per PayPal account remained at current levels.
- PayPal EBITDA Margin: We currently forecast PayPal EBITDA margin to marginally increase from about 25.1% in 2012 to 26% by the end of our forecast period. There could be a 5% downside to our price estimate if margins were to fall back to 2011 levels of 22.6%.
For additional details, select a driver above or select a division from the interactive Trefis split for eBay at the top of the page.
eBay is known for operating the online marketplace eBay.com. The company's marketplace is where third-party buyers and sellers can transact in a variety of products including clothing, electronics, media, collectibles, automobiles and many other types of merchandise.
In addition to eBay.com, the company operates other online commerce platforms such as Half.com, Rent.com, Shopping.com, and classifieds websites. eBay also makes money through its global payments platform called PayPal. PayPal enables enables secure, easy, quick, and cost-effective transfer of payments online.
In March 2011, eBay agreed to acquire GSI Commerce for $2.4 billion. This deal was closed in 2011 and helped eBay to enable more merchants of all sizes to conduct e-commerce and to compete more effectively with online retailers such as Amazon. This deal is one of the biggest for eBay since its 2005 acquisition of Skype for $2.5 billion. GSI commerce will make eBay's marketplace more attractive for large retailers who prefer selling at fixed prices. eBay and GSI aim to move towards a common platform after 2011 to serve retailers of all sizes across eBay, Paypal and GSI.
We estimate that PayPal is the most valuable segment for the following reasons:
PayPal's Rapid Growth Is Expected To Continue
PayPal's revenues have grown at about 25% over the past two year and we expect it to continue growing at similar rate in the near term. Our expectation is supported by PayPal's efforts to look beyond eBay for revenues. The company has been rapidly expanding its presence offline through mobile apps meant to facilitate cash less transaction at physical retail outlets. It also tied up with Discover Financial Services in 2012 to expand its offline presence.
Global Expansion Potential
PayPal currently has only limited global presence. In most countries, it is still associated as a payment means on eBay. Efforts similar to the ones underway in the U.S. can see PayPal beat our projections and continue at its current revenue growth for several years down the line.
Growth in global e-commerce volume
eBay's marketplaces business is growing at a healthy pace due to the growth in global e-commerce volume and the company's continued site improvements. We expect eBay to enable more than $200 billion in commerce volume in 2013, up from $175 billion in 2012. Going forward, the company can complement its efforts and maintain the momentum by better leveraging social networking platforms and expanding in emerging markets. According to Forrester Research, the online retail sales in the U.S. will grow at a compounded annual growth rate of 10% over the next few years, and account for 10% of total U.S. retail sales in 2017.
Focus on Increasing Conversion Rate
Conversion rate is a key focus area for eBay, as it seeks to increase the success of sellers in converting listed items to sold items. eBay has implemented a number of features to increase the conversion rate on marketplaces and has launched a revamped website. The new website interface makes it easier to browse through the selection and integration with the mobile platform means that the user can continue shopping through their mobile devices. The efforts have borne fruit as the active user base has grew by 12% in 2012. We expect the growth to continue in the short term.
Growing PayPal User Base
PayPal users will continue to grow as eBay continues to integrate Paypal into its adjacent marketplaces platforms such as Shopping.com and Rent.com. The increased penetration of PayPal on third party merchant platforms will also help as eBay increases its focus on SMEs.
We expect the rapidly growing mobile payments market to contribute significantly to PayPal's growth in terms of total payment volume and other usage metrics. The company is promoting mobile transactions as an alternative to payment by cards through its mobile app. The service works through the PayPal app that customers can use to check-in to the store. PayPal has partnered with point of sale technology companies such as MICROS, Island Pacific, Kounta and Vend and will soon add more retailers and hospitality partners into the mix. eBay expects PayPal to do $20 billion of mobile commerce and payments volume in 2013.
Increasing Payments Competition
Google Checkout, Square and credit card merchants will limit eBay's ability to increase revenues by increasing its commission on PayPal transactions ("take rate").
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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