ChannelAdvisor’s assessment that leading online marketplace, eBay‘s (NASDAQ:EBAY) February sales grew by only 8%, its lowest in almost two years triggered a decline in eBay’s stock price Wednesday. We expect that eBay’s strong presence in the mobile world through popular apps, its new interface and expansion into emerging markets such as Russia and China will drive sales in the near term and that the February figures may prove to be an aberration.
Here we take a look at factors that support our forecast for eBay’s marketplace revenue growth and our $54 Trefis price estimate for eBay. Marketplaces account for about 40% of our price estimate for the company and 50% of its revenues. In the recent past, PayPal’s growth has obscured marketplaces’ strong performances, and we believe that the segment still has a lot of growth potential.
Popular eBay Apps Will Help Marketplaces’ Cause
Marketplaces accounts for almost half of eBay’s total revenues. In 2012, marketplaces’ total gross merchandise volume increased by 15% to more than $75 billion. The number of active users grew 12% year-over-year to 112 million, the fastest growth since 2007. This growth was primarily a result of the popularity of eBay’s mobile apps, site enhancements and growth in the emerging markets. Driven by eBay Mobile apps crossing the 100 million downloads threshold, m-commerce volume in 2012 was a healthy $13 billion. Mobile also attracted over 4.3 million new users to eBay in 2012, prompting sellers to list almost 2 million items per week from their smartphones on eBay.  
The U.S. accounts for about half of eBay’s revenues. With the smartphone penetration rate in the U.S. still at about 54% of mobile market penetration and growing at 5% on sequential quarter basis, we expect the popularity of eBay’s mobile apps to drive sales growth in the near term.
ChannelAdvisor’s estimate of monthly same store sales growth for eBay
This will be aided by the company’s efforts to get rid of its image as an unorganized marketplace and project itself as a provider of personalized, curated, consistent and contemporary shopping experience. The company has revamped its website and launched contemporary features such as eBay Feed, which provides personalized recommendations. These efforts support our expectation that the company will meet its forecast of marketplaces mobile commerce volumes crossing $20 million in 2013. We believe that eBay’s same store sales will pick up pace and return to historical levels in due time.
Expansion Into Emerging Markets
eBay is also expanding its global footprint, enabling greater access to its services in the emerging markets and driving more cross-border trade. It expanded efforts in Russia during Q4, and launched eBay style in China, giving U.S. fashion sellers access to Chinese consumers. Accelerating Internet penetration in these regions will also help its cause. The number of mobile internet users in China grew 10% in 2012, while in Russia more than 50% of the population now has access to the Internet.
The company estimates that the number of users for its Russian service increased by about 80% in 2012. With the volume of online sales in Russia growing about 25% per year, eBay looks set to outpace competition by a substantial margin. The resolution of delivery issues through a tie-up with a local partner could see this growth further accelerate in 2013. In China, it is already operating through a partnership with homegrown Xiu.com. We expect similar arrangements to be announced over the coming months as the company looks to grab a bigger share of the Chinese e-commerce market.
The huge potential for growth supports our projections for marketplaces. We have a $54 Trefis price estimate for eBay, which is 5% above the market price.
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