eBay (NASDAQ:EBAY) will report its Q1 2014 earnings on 29th April. We expect the continued growth in the global e-commerce market, eBay’s efforts to simplify its payment system, and the symbiotic relationship between eBay and PayPal to fuel the company’s quarterly results. We further expect double digit growth in both its key businesses, marketplaces and PayPal, which together account for about 70% of its value, according to our estimates. The marketplaces business has revived and mobile commerce continues to be one of the key focus areas of the company. The growth in commerce volume is being driven by a growing customer base even though payment per customer saw a slight decline in 2013. Here is what you can expect from the upcoming earnings announcement.
Our price estimate for eBay stands at $60, implying a premium of little under 10% to the market.
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Global E-Commerce Market Is Poised To Grow By 20% This Year, Will Aid eBay’s Quarterly Results
According to eMarketer’s forecast, global business-to-consumer e-commerce sales are expected to jump by roughly 20% in 2014, amounting to $1,500 billion.  This expected growth is higher than what the industry saw last year, and much of it will be driven by the continued uptake in mobile usage in emerging markets, expansion into new regions and advancements in payment and shipping services. We believe that eBay’s first quarter results will see the impact of these tailwinds, especially as the company continues to invest in expansion of product categories and improvement of PayPal’s interface.
Additionally, the research firm expects North America, Western Europe and Asia-Pacific to account for 90% of global online retail spending.  This bodes well for eBay as the company has a reasonable presence in these markets. 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 the rest of the world jump by 13%. The 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. 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.
PayPal & eBay’s Unison To Fuel Payment Revenues
eBay’s management has been touting the friendship between eBay marketplaces business and PayPal as the key reason why payment volume has grown substantially over the last few years. We strongly endorse this statement and believe that data sharing between two businesses paves the way for innovation in the payment system, and eBay’s marketplaces generates strong cash flow to fund PayPal’s growth.
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 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 the 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.Notes: