Here Are The Key Triggers For eBay’s Stock
eBay (NASDAQ:EBAY) is one of the leading players in the online commerce and payments industry. While our $60.39 price estimate for eBay’s stock represents near-5% premium to the market, we think there are certain probable scenarios that can impact the stock considerably over the coming years, assuming the market prices in these triggers correctly. Specifically, the possibility of accelerated growth in the marketplaces segment (at-par with the overall e-commerce market), and increased competition in the payments business are plausible events that could influence stock price movements for better or worse.
See our complete analysis for eBay
Accelerated Growth In The Marketplaces Segment (+10%):
Although net transaction revenues in the marketplaces segment rose by 12% in 2012 and 2013, respectively, it increased by only 3% in 2014, owing to various traffic-related headwinds. Last year, eBay faced a security breach due to which it asked all its users to change their passwords. This caused friction as many users avoided the site out of caution. Additionally, changes in Google’s SEO algorithm impacted eBay unfavorably, as the latter was penalized for factors such as content quality issues and mismanagement of paid search strategies. The company forecasts that business in the marketplaces segment will worsen in the near term, before showing recovery during the second-half of the year. In Q1 2015, marketplaces’ net transaction revenues fell by 3% annually.
In our $60.39 price estimate for eBay, we have forecast net transaction revenues in the marketplaces segment to rise at 5.4% annually over our forecast period. Noting that the global retail e-commerce market (excluding China) is forecast to rise at over 12% during 2014 to 2018, according to eMarketer, we expect eBay to lose some market share in the global e-commerce market. [1] This is mainly due to increased competition, as we expect Amazon and Alibaba to gain market share over our forecast period. Additionally, the entry of newer players and traditional brick-and-mortar players, including Wal-Mart and Target, will further intensify competition for eBay in the future.
In the event net transaction revenues in the marketplaces segment increase at about 11% CAGR over our forecast period (at par with the overall market), it would represent a 10% increase in our price estimate. A number of factors make this scenario plausible including: 1) renewed management focus on marketplaces segment post the spin-off of other businesses that lifts innovation within the segment; 2) putting in-place stable and long-term SEO strategies, and improving security features on the platform; and, 3) accelerated push into high-growth markets such as Russia, Brazil, India, etc. eBay’s network effect, which encompasses tens of millions of sellers and more than 155 million active buyers, represents a significant competitive advantage that can be leveraged for future growth.
Slower Growth In The PayPal Segment (-10%): PayPal is the bright spot in eBay’s business, as payments net transaction revenues rose by 25%, 18% and 18%, respectively, over the last three years. In our valuation model, we expect the high growth rates to persist in the PayPal segment, due to its strong brand image and leading position in the online payments market. Thus, we have estimated net transaction revenues for PayPal to expand at an annual rate of over 14% over our forecast period. The mobile payments market is expected to see rapid growth in the coming years, and together with PayPal’s innovations, we expect the company to capitalize on these growth opportunities.
However, under a scenario wherein payments net transaction revenues rise at a slower pace of 9% CAGR over our forecast period, it would lead to a 10% decrease in our price estimate to $54.60. We believe this scenario is plausible considering the growing threat from Apple Pay, Google Wallet, Samsung Pay, etc. Since Apple Pay is fast gaining traction and that it allows easier and secure transactions, it could eat into PayPal’s mobile payment market share. Moreover, the integration of payments in mobile apps by players such as Facebook could further increase competition for PayPal in the long run. Another factor that could weigh on revenue growth is the expected reduction in take rates due to the addition of larger merchants and high growth at Braintree business (which has lower take rates).
View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research
- Retail Sales Worldwide Will Top $22 Trillion This Year, eMarketer, December 23, 2014 [↩]