eBay Can Reach $48 On Marketplaces Strength And Paypal’s Growth

EBAY: eBay logo

eBay (NASDAQ:EBAY) saw its revenue grow around 27% in 2011 and nearly 29%  in Q1 2012 with most of it driven by its two primary businesses – Marketplaces and PayPal. While its core e-commerce business – Marketplaces – continues to show steady growth, PayPal has been the show stopper growing much more quickly than any of eBay’s other businesses.

In the Q2 earnings call due July 18th, we will be watching closely how eBay plans to extend its lead in the payments space as well as grow its e-commerce businesses. We will look out for any announcements regarding performance in the last quarter of Paypal Here, its new mobile card payment offering which enables small businesses to accept card payments. eBay competes primarily with Google (NASDAQ:GOOG), Square, Intuit GoPayment and other competitors in the payments space, and Amazon (NASDAQ:AMZN) in e-commerce.

Check out our complete analysis of eBay

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Paypal is quickly catching up with Marketplaces as has been observed each quarter. In Q1 2012, PayPal saw its total payment volume increase to $34 billion, up 24 percent year over year, with 110 million active registered accounts. We expect an increase in the total registered accounts, payments per account as well as the average payment amount, which should lead to a significant increase in its total payment volume in the coming years.

eBay made two major announcements late in May which augur well for PayPal.

The first announcement was its partnerships with VeriFone and Equinox which are the No.1 and No.3 makers of Point-of-Service (POS) terminals. This gives PayPal access to Verifone’s 5 million terminals in the US, 1 million of those being high volume points of sale. In addition, Verifone is used by 80% of the top 200 retailers in US. While not expected to have immediate benefits, these deals show PayPal’s immense future potential.

The second announcement was about 15 national retail stores agreeing to accept PayPal as a payment method. These include names like Abercrombie & Fitch, Advanced Auto Parts, Aeropostale, American Eagle Outfitters , Barnes & Noble , Foot Locker, Guitar Center, Jamba Juice, JC Penney, Jos. A. Banks, Nine West, Office Depot , Rooms To Go, Tiger Direct and Toys “R” Us. The 15 retailers add an additional 17000 locations for PayPal’s POS. Together with Home Depot’s roughly 2000 POS, it now has access to 19000 retail locations in partnership with 16 retailers. We expect eBay to shed further light on the way ahead for PayPal in the earnings call.


eBay has continued to improve its marketplaces. It acquired GSI Commerce as well as Hunch in 2011, in order to increase its share of the e-commerce pie which is set to get bigger in the coming years.

GSI Commerce enables eBay to offer online shopping platforms for large brands/retailers, which could increase sales significantly. We will be watching the earnings call closely for any hints related to eBay’s growth strategy in this space.

PayPal accounts around 30% while Marketplaces account for around 51% of eBay’s overall value. GSI Commerce’s contribution is relatively miniscule at 4.5%. We currently have a $47.50 Trefis price estimate for eBay, which stands nearly 18% above the market price.

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