eBay (NASDAQ:EBAY) has done well in recent years by reviving its marketplaces business and accelerating PayPal’s growth across the board. We continue to remain positive on the company’s prospects due to its strong performance in North America and international markets and continued adoption of PayPal. Our price estimate for eBay stands at $60, implying a premium of about 10% to the market. This is a reflection of its growing customer base, payment volume, expansion in mobile commerce and the overall growth in the e-commerce industry. eBay expects to grow its earnings and revenues significantly over the next couple of years, and given its recent performance, we believe that management is capable of doing so.
Encouraging Performance In Europe
eBay’s international revenues jumped from $4.57 billion in 2008 to nearly $8.34 billion in 2013, registering a compounded annual growth rate (CAGR) of 12.8%.  The last three years have been especially rewarding, as the growth was much higher than the overall CAGR for the last five years. Germany and the United Kingdom together accounted for about 49% of eBay’s international revenues in 2013, and close to 26% of its global revenues. Both these markets grew at a similar rate of 15%-16%, whereas the company saw its revenues from rest of the world jump by 13%. All round growth is an encouraging sign as it reduces eBay’s dependence on a single market.
Given that the eurozone and the U.K. are coming out of recession, we expect eBay to benefit from some economic tailwinds as demand improves. The company signed a deal with Argos last year, a store chain in the U.K., to allow local shoppers to pick up their online purchases from eBay at local Argos 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.
PayPal Going Strong
PayPal has been going strong with the number of active registered accounts rising from 57 million in 2007 to 143 million in 2013. The company added close to 20 million accounts in 2013 alone. 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 is likely to 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, driven by 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.
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. eBay recently raised its stake in Snapdeal.com, which is India’s largest online marketplace. 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. 
As far as China is concerned, local e-commerce sites Tmall and Taobao account for the bulk of the country’s marketplaces volume. Owned by Alibaba, these portals have grown their combined gross merchandise volume from RMB 16.90 billion in 2006 to more than RMB 1 trillion in 2012.  That’s almost 100% compound annual growth rate for a period of six years. eBay is reconsidering its strategy on China and is likely to invest going forward to gain foothold in the region.
Our price estimate for eBay stands at $60, implying a premium of about 10% to the market.Notes:
- eBay’s SEC Filings [↩]
- EBay Strikes Delivery Deal With U.K. Store Chain Argos, The Wall Street Journal, Sept 24 2013 [↩] [↩]
- E-commerce in India: Early birds, expensive worms, McKinsey [↩]
- Alibaba’s Tmall and Taobao ecommerce sites pass $157b in combined 2012 sales volume, thenextweb.com, Dec 3 2012 [↩]