eBay’s Marketplaces Has Momentum For Continued Growth

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eBay (NASDAQ:EBAY) has taken several initiatives to make its service more widespread, attractive and simpler. The impact of these initiatives might take some time to become apparent. PayPal was the star performer for the company in the recent quarter as it expanded its global footprint and benefited from increased merchant coverage and a higher share of checkout. Nevertheless, its marketplaces business has also done well in recent quarters and is equally critical to its long-term success.

The conversion rate is a key focus area for eBay as it seeks to increase the success of its sellers in converting listed items to sold items. The company has implemented a number of features to increase the conversion rate. Its revamped website interface makes it easier to browse through the selection, and the integration with its mobile platform will be valuable.

The marketplaces business continued to grow at a healthy pace in the first half of 2013, and the company attributes the strong performance to continued site improvements as well as growth in global e-commerce volume. 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.

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Leveraging Social Networking Sites

Although eBay has its own platform for goods transaction, it can leverage social and professional network platforms such as Facebook (NASDAQ:FB), Twitter and LinkedIn (NASDAQ:LNKD) to promote its marketplaces business. The company can use these sites as marketing channels to draw in more customers.

Facebook, in particular, has demonstrated that its advertisements are highly targeted and offer attractive ROI (return on investment) to marketers. eBay will not only get more customers through Facebook, but there is also a good chance that these customers are more inclined towards buying online. In fact, eBay India gets 14% of its site traffic from Facebook. Additionally, LinkedIn can be used as an effective marketing tool to find merchants that can tie up with eBay to sell their products through its platform. In essence, the company can harness the power of social networking to boost its marketplaces ecosystem, especially as it expands in new markets.

Expansion In Emerging Markets

eBay’s marketplaces business will benefit from international expansion in BRIC (Brazil, Russia, India and China) countries. Foreign retailers are showing interest in these regions due to an increasing market size, a growing number of aspirational buyers, rising personal income and the lack of organized retail penetration. The company officially launched its localized website in Russia in Q1 2013 and a full marketing campaign, which includes TV, was launched in Q2. In India, it lowered its fee to attract sellers and recently invested $50 million in Snapdeal.com, which is India’s largest online marketplace. The move coincided with Amazon’s launch of its Indian website and showcases the growing interest of online retailers toward the Indian market. Let’s take a look at what India can offer eBay.

According to research conducted by PricewaterhouseCoopers (PwC) in 2012, the retail market in India stands at over $350 billion and is growing at a healthy compounded annual growth rate (CAGR) of 15-20%. As far as the online retail market is concerned, it is still at a nascent stage but seems to have picked up significantly in the last couple of years. Consulting firm McKinsey expects India’s e-commerce market to grow at a rapid pace for the next few years amounting to $2 billion by 2015. [1] The firm also estimates that the country will have roughly 38 million active online shoppers by then. [2]

Looking at the long-term potential and current growth in India’s e-commerce market, it appears that there may be enough room for several retailers, and competition shouldn’t be a big concern. eBay has had a presence in the Indian market for a while and already dominates the U.S. market when it comes to a marketplace model where it acts as a medium between individual buyers and sellers (including businesses).

Our price estimate for eBay stands at $60, implying a premium of 5-10% to the market price.

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Notes:
  1. E-commerce in India: Early birds, expensive worms, McKinsey []
  2. ref:2 []