eBay (NASDAQ:EBAY) has done well in recent years by reviving its marketplaces business and accelerating PayPal’s growth across board. However, the revenue contribution of international business has declined slightly from 54% to 52% over the last two years, which can be attributed to adverse currency movements.
Germany and United Kingdom remain the two biggest markets for eBay outside the U.S. accounting for roughly half of its international revenues. Most of the company’s overseas operations are denominated in the Euro, British pound, Korean won and Australian dollar, which clearly indicates the potential to expand in several big emerging markets such as India, China and Brazil.
In essence, eBay is doing exceptionally well both at home and abroad, which is commendable as most companies tend to have different growth trajectories. This indicates that the demand for e-commerce and online payment systems is growing rapidly in most parts of the developed world with developing markets slowly catching up. eBay has plenty of upside if the momentum continues, this growth could accelerate given eBay’s emphasis on Paypal abroad, the rise of social media and its emphasis on emerging markets.
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Overview Of The Performance Of eBay’s International Business
eBay’s international revenues jumped from $4.6 billion in 2008 to nearly $7.3 billion in 2012, registering a compounded annual growth rate (CAGR) of 12.24%.  Most of this growth came in the last two years when the figure for CAGR stood at 21.5%. While Germany saw a slowdown in the growth in 2012, other markets including the United Kingdom and rest of the world continued to grow at 20%+ rate. Germany and the United Kingdom together accounted for over 48% of eBay’s international revenues in 2012, and close to 25% of its global revenues. Clearly, these two markets are very important for the company.
Given that the eurozone and the U.K. are slowly coming out of the recession, we expect eBay to benefit from some economic tailwinds. The company recently signed a deal with Argos, a store chain in the U.K., to allow the local shoppers to pick up their online purchases from eBay at local Argo stores.  We believe that eBay will continue to focus on expanding its international presence and lay greater emphasis on PayPal’s growth in emerging markets.
eBay’s Revenue Trends (Domestic & International), Source: SEC Filings
eBay’s International Revenue Breakup, Source: SEC Filings
Three Ways eBay Can Further Boost Its International Business
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. Given the momentum and the opportunity, eBay should try and push PayPal more in emerging markets where online payments still form a small proportion of the overall payments. E-commerce is still in nascent stage in these markets. Over the next few years, online purchases will pick up due to the growing number of Internet users and increased smartphone usage. Mobile is going to be one of the key growth areas for PayPal, not just in the developed countries but also in emerging markets of Asia and Latin America. eBay expects PayPal to do $20 billion of mobile commerce and payments volume in 2013.
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.
Focus On 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).
Although the international opportunity may look big, there is no guarantee for success. In 2002, eBay terminated its marketplaces business in Japan as it could not compete with Yahoo! Japan Corp. back then. In 2012, it ended a Chinese joint venture. As the company expands into new international markets, it may take up to a year to churn profits. In addition, it may have to deal with stringent regulations, local competition, legal requirements, consumer disposition towards traditional buying channels, and relatively low use of online payment systems.
Our price estimate for eBay stands at $57, roughly in line with the market price.Notes: