All Around Strong Performance Caps A Great Year For eBay

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eBay (NASDAQ:EBAY) capped off a great year with a spectacular holiday season quarter. Increased adoption of mobile devices for e-commerce and payment purposes, saw the company beat its own estimates for the year. In 2012, it enabled about $175 billion in commerce volume giving it a 19% share in global e-commerce and almost 2% of total global retail. [1] For the full year, revenues increased 21% to $14.1 billion.

The company is working on expanding offline presence of its payment services to drive future growth. Its tie-up with Discover Financial Services (NYSE:DFS), will be launched in Q2 2013. Recently PayPal announced a tie-up with ATM Company NCR, which will expand its presence to restaurants and gas stations. [2] We expect PayPal to lead revenue growth in 2013, and eBay’s continual focus on expanding its offline presence could see PayPal overtake Marketplaces and become the largest revenue contributing segment. Here we take a look at how eBay’s primary businesses performed in 2012, and trends that will effect them in 2013.

eBay competes primarily with Google (NASDAQ:GOOG), Square, Intuit GoPayment and few other companies in the payments space, and Amazon (NASDAQ:AMZN) in e-commerce.

Check out our complete analysis of eBay

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PayPal Drives eBay’s Growth

PayPal led from the front with revenues increasing ~25%. The revenue growth was accompanied by a similar growth in Total Payment Volume (TPV). The growth came from varied avenues with international TPV increasing 28%. International TPV now comprises 48% of overall TPV in the fourth quarter. We believe that simultaneous efforts to expand its global and offline presence will result in PayPal registering similar growth rates in 2013. Our expectations are supported by a growth in mobile adoption, which resulted in PayPal’s mobile payment volumes increasing 250% to $14 billion in 2012. Mobile payments now account for about 10% of PayPal’s total payment volume in 2012, and the company expects it to reach $20 billion 2013.

The number of active accounts on PayPal reached 123 million, a growth of 15%. The diversification of the target market from only eBay to other merchant services over the past decade, has fueled this growth. Tie-ups with Discover Financial Services, NCR, PayPal Here and increasing usage of mobile devices for browsing the internet are factors which lead us to expect a similar growth in 2013.

Marketplaces Gaining Popularity Once Again

Marketplaces had a very strong quarter with net revenues of $2 billion, up 16%. For the full year, revenues increased 11% to $7.4 billion. The growth was supported by transaction revenue growth of 16% and marketing services revenue growth of 16%. eBay’s strategy of revamping its branding and website design is leading to greater adoption by customers as active user growth accelerated to 12%. Marketplaces now has 112 million active users. Ongoing site improvements, such as streamlined registration and checkout, combined to accelerate the growth in gross merchandise volumes (GMV). The growth for the fourth quarter at 19% was 3 percentage points, more than that for the third quarter when the old website design was in place. Fixed price listings now accounts for almost 70% of global GMV, and we expect Marketplaces to turn into a formidable competitor to Amazon’s dominance of e-retail world in 2013.

Like PayPal, Marketplaces growth was supported by the growing popularity of its mobile app. eBay expects Marketplaces mobile commerce volumes to cross $20 million in 2013. In 2012, mobile attracted over 4.3 million new users to eBay and generated $13 billion in mobile commerce volume. That’s well over twice the volume from the previous year and more than the original $10 billion forecast for the year.

GSI Commerce Matches Steps Towards Growth

For the fourth quarter, GSI Commerce revenues grew 10% to ~$400 million. Global e-commerce merchandise sales, or GMS, grew 19% on a same-store sales basis. The same-store sales growth suggest that GSI is outpacing overall e-commerce growth, which is a positive sign. GSI currently enables 17 client sites leveraging ebay.com as a distribution channel to expand their businesses domestically and globally. The company is also promoting PayPal as a payment channel to GSI clients. PayPal now accounts for slightly more than 90% of GSI client volume and share of checkout is 16%. Additionally, 47 client sites are using PayPal Mobile and four are adopting PayPal POS capabilities.

We expect the cross-marketing of services to drive GSI’s growth rate in 2013. GSI can leverage Discover’s wide network of enterprise customers to promote its services.

We currently have a $50 Trefis price estimate for eBay, which is being revised.

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Notes:
  1. eBay Management Discusses Q4 2012 Results, Seeking Alpha, January 2013 []
  2. PayPal partners with NCR to get into restaurants, gas stations, Reuters, January 2013 []