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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 8.1% in 2012 to 7.5% by the end of the Trefis forecast period. There could be a 3% upside to the Trefis price estimate if the take rate were to remain flat at around 8%.
- Marketplaces EBITDA Profit Margin: We currently forecast marketplaces margin to stay flat at current levels of 48.6% to the end of the Trefis forecast period. There could be a 4.5% upside to the Trefis price estimate if margins were to rebound to 2008 levels of about 54%. On the other hand, there could be a 3% downside to the Trefis price estimate if margins continued falling, reaching 45% by the end of the Trefis forecast period.
- Payments per Account on PayPal: We currently forecast that the average number of payments per PayPal account will steadily grow to 2.5 by the end of Trefis forecast period. There could be 20% upside to the Trefis price estimate if payments could increase to 3.5 payments per account. On the other hand, there could be 25% downside to the Trefis price estimate if payments per PayPal account fell to 1.2 by the end of the Trefis forecast period.
- PayPal EBITDA Profit Margin: We currently forecast PayPal margins to marginally increase from about 28% in 2012 to 28.7% by the end of the Trefis forecast period. There could be a 6% downside to the Trefis price estimate if margins were to fall back to 2011 levels of 25% or declined further.
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 like 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. This acquisition 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. EBay hopes that this acquisition will add to their bottom-line from 2012 onwards, even though it may put negative pressure on its operating profits in the short-term.
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 rates in the near term. The 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 has also tied up with Discover Financial Services in 2012 to expand its offline presence. The results of the tie-up are expected to show starting 2013.
Global Expansion Potential
PayPal currently has only limited presence globally. In most countries it is still associated as a payment means on eBay. Efforts similar to the ones underway in the U.S. could see PayPal beat our projections and continue at its current revenue growth till the end of Trefis forecast period.
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 recently relaunched 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 like Shopping.com and Rent.com--and through increased penetration of PayPal on third party merchant platforms, as eBay increases its focus on SMEs.
We expect the rapidly growing mobile payments market to contribute to a significant amount of growth for PayPal, in terms of total payment volume and other usage metrics.
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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