This morning eBay (NASDAQ:EBAY) announced that it acquired Hunch (hunch.com) to tap the company’s expertise in machine learning, data mining and predictive modeling for consumer behavior. This technology helps tailor data for customers based on user feedback and ratings as well as the users activity on social networks such as Facebook and Twitter. With this information, Hunch builds a customized “taste graph” the user might like such as music, restaurants and brands. With this move, eBay looks to be making a more concerted push into predictive marketing, which is something that Amazon has done very successfully. As secondary benefits Hunch also brings a social networking angle and relies heavily on the mobile users which could help eBay expand its mobile reach. More directly, this move helps eBay compete with the likes of Amazon (NASDAQ:AMZN) in e-commerce and Google (NASDAQ:GOOG) and Facebook in the social networking domain.
Seeing Value in Predictive Power of Social Networks
The most direct goal for eBay is to provide better recommendations for items and become a destination of choice for users looking for to buy online. Amazon currently dominates the online retail market as general and electronics merchandise make up around 70% of our $244 price estimate for Amazon (implied $106 billion market cap). On the other hand, over 50% of eBay’s value comes from Marketplaces where it helps facilitate peer to peer sales. We have a $38.70 price estimate for eBay, which implies around a $50 billion market cap.
Sets Lofty Mobile Targets
With a target of achieving $5 billion in merchandise transactions on mobile, eBay already has big names such as Google to compete with as the lucrative holiday season starts. Google has tremendous reach in the mobile segment with Android. Additionally, Google Wallet continues to form tie-ups with other popular retailers such as American Eagle and Jamba Juice.  While its availability is still limited to one NFC-enabled smartphone, Google has enough resources at hand to scale the Wallet big enough to challenge PayPal.
We have a revised price estimate of around $39 for eBay’s stock, which is about 24% above the current market price.