eBay (NASDAQ:EBAY) has taken several initiatives to make its service more widespread, attractive and simpler. There are some tailwinds to its key businesses as global e-commerce volume continues to expand and mobile payments grow.
As a result, the company has set aggressive targets for the next 2-3 years. eBay expects earnings growth of 15% to 18% over the next three years (including 2013) with revenues expected to jump by almost 70% during the same period. The current trends indicate that this may be achievable. PayPal is performing strongly and the marketplaces business is gaining momentum.
Here are some ways the company can boost its earnings growth in the near term.
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Star Performance From PayPal
PayPal has been going strong with the number of active registered accounts rising from 57 million in 2007 to 123 million in 2012. The company added another 9-10 million accounts in the first half of 2013, taking the total to 132 million. The number of payments and the total payment volume are also growing thanks to the explosive growth in global e-commerce. PayPal continues to expand its global footprint and is benefiting from increased merchant coverage and a higher share of checkout. This means that more customers are buying goods and services through PayPal, and many merchants believe that integrating PayPal has been helpful in acquiring new customers.
Mobile is going to be one of the key growth areas for PayPal, and 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. 
Tie-Up With Discover Financial Services
PayPal announced an arrangement with Discover last year under which PayPal has been issuing payment cards to its active users in the U.S. The new card will have a Discover Issuer Identification Number which is a code that identifies the card holder,and will allow users to buy from merchants that are part of Discover’s network. We expect the enhanced ubiquity of the payment service will positively impact the number of transactions per PayPal account.
‘PayPal Here’ As A Replacement For Cash Registers
PayPal launched a point of sale solution PayPal Here in 2012. The solution will serve as a replacement for cash registers. It enables merchants to use a card reader attached to a mobile device to accept payments. The card reader device is aimed at small businesses who are unwilling to bear costs associated with keeping cash registers. With several big brands such as Home Depot, Abercrombie & Fitch, Jos. A Bank, etc. integrating PayPal into their existing payment platforms, the future for PayPal, subject to an effective implementation of the technology, looks promising. In Q2 2013, RadioShack implemented PayPal’s point of sale options in a majority of its U.S. locations.
Growth In Marketplaces Business
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.
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.  The firm also estimates that the country will have roughly 38 million active online shoppers by then. 
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 the marketplace model where it acts as a medium between individual buyers and sellers (including businesses).
Our price estimate for eBay stands at $57, implying a premium of 10% to the market price.Notes: