eBay Q4 Earnings Preview: PayPal in the Limelight

While eBay (NASDAQ:EBAY) benefited from the bumper holiday shopping season, its 2011 results due on January 18th, are expected to be a mixed bag when compared to online retail giant Amazon (NASDAQ:AMZN). PayPal has been a winner in terms of revenue growth, clocking in at around 23%-29% for the first nine months of 2011. However, Amazon’s online retail has left eBay’s marketplaces far behind in terms of growth.

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GSI Can Reshape Marketplaces

The acquisition of GSI Commerce may well reshape eBay’s marketplaces. GSI Commerce specializes in creating online shopping platforms for brands/retailers, and eBay can leverage this to connect further with large retailers, much like Amazon does. This would be a big departure from eBay’s traditional model of connecting small buyers and sellers, but would be essential in providing a larger revenue upside to the company. Having said that, Amazon’s +40% revenue growth has come at the expense of dangerously low margins, something eBay would rather avoid.

As far as 2011 is concerned, eBay has been  prudent in expanding the scope of mobile payments on PayPal, and has also made strategic acquisitions like Hunch to improve its marketplace platform. The holiday shopping season should also help improve sequential revenues for Q4, but not as much as Amazon. Our current revenue expectation is in the order of $11.7-$11.8 billion for the company.

We currently have a price estimate of around $39 for eBay’s stock, which is about 24% above the current market price.

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