eBay Cruises to $39 on PayPal, GSI Commerce Growth Engines

October 25th, 2011 by Trefis Team
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While Q3 2011 showed strong results for each of eBay’s (NASDAQ:EBAY) business segments, recent developments in the mobile payment space may propel PayPal’s business even further. This quarter also registered the first contribution of GSI Commerce to its parent company after being acquired by eBay in Q2 2011. We have updated our model to reflect this acquisition and estimate that GSI Commerce constitutes around 6% of the stock value. [1] [2] With new developments in the mobile payment segment, we expect eBay to show strong growth in the quarters ahead despite competition from contenders such as Google (NASDAQ:GOOG).

We have a revised price estimate of around $39 for eBay’s stock, which is about 20% above the current market price. The price adjustment was made by adjusting revenue forecasts for the company’s divisions, the addition of GSI Commerce as a division and the change to the company’s net cash/debt position.

See our full analysis for eBay’s Stock

PayPal Should See Exciting Mobile Growth

With PayPal clocking in +30% gains on both revenue and total payments volume, eBay’s flagship payment platform is well on its way to achieve its $3.5 billion in mobile payments by the end of 2011. The goal should be further helped by the fact that PayPal is now being integrated into eBay’s bar-code scanner, the RedLaser. This should offer both scale and technology advantages to PayPal, which can act as constraints for Google Wallet.

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We wrote previously the RedLaser app enables smartphone users to quickly scan product bar-codes and could provide be a nice shopping tool too, i.e. checking price listings for the scanned bar-code on eBay’s marketplaces. In addition, the new ability of directly paying through PayPal after scanning the code is a significant competitive advantage in the mobile payments space. Firstly, the technology itself does not need a near-field communication (NFC)-based smartphone, which is currently a constraint for Google Wallet. Secondly, given that PayPal has already crossed a 100 million registered accounts, [3] eBay already has sufficient presence in the mobile payment segment. On the other hand, Google Wallet is still in progress to build its scale through partnerships with credit card companies such as MasterCard and Citibank.

GSI Commerce is a Good Strategic Fit

Essentially a marketing services company for retailers world-wide, [4] GSI Commerce should complement eBay’s marketplaces and vice-versa, as GSI would now have access to the millions of small-scale sellers on eBay’s marketplaces. Many of these sellers would like to promote their retail business further and GSI could help.

In the long term, we expect GSI Commerce to increasingly become more integrated with eBay’s marketplaces as this should provide sellers an additional incentive to register on the site themselves.

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Notes:
  1. eBay Inc. Reports Strong Third Quarter 2011 Results [↩]
  2. eBay Closes $2.4 Billion Acquisition of GSI Commerce [↩]
  3. eBay Inc. Reports Strong Second Quarter 2011 Results [↩]
  4. GSI Commerce: About [↩]