- Quick Take
- We expect the company to build on the stellar growth of 2012 when revenues grew 20% to $14 billion. Earnings for Q1 2013 are expected April 17.
- The expansion into emerging markets and growth in smartphone penetration will help drive marketplace’s growth.
- PayPal’s growth will be driven by offline expansion through hardware and mobile apps.
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. Buoyed by the performance, the company set aggressive targets for 2015.
At the recently held eBay annual investor day, the company announced a target of growing annual earnings in the 15-19% range over the next three years. It is also targeting an increase in revenue by about 70% for the period from $14 billion in 2012. The first hints about the company’s initial success will become evident when it releases its earnings for the January-March quarter on April 17. We expect it to continue its rapid growth helped by the growing adoption of m-commerce and PayPal. We also look forward to the company’s plans toward supporting expansion into emerging markets, particularly the BRIC (Brazil, Russia, India and China) countries.
Expansion Into Emerging Markets To Drive Marketplace's Growth
In order to meet its target of having 25% of active users and more than 12% of global sales from BRIC countries and emerging markets, the company has been aggressively pushing for expansion in these regions. In Q4 2012, it launched eBay Style in China, giving U.S. fashion sellers access to Chinese consumers. Recently, it launched a Russian version of its marketplace to support the growing adoption of its service in Russia. With the new site, eBay is pooling listings from sellers around the world that are available for shipping to Russia and inviting Russian shoppers to search the site either in English or Cyrillic, with payments processed through PayPal. eBay Russia had registered 54% growth in user spend in 2012 even as the number of active users grew almost 75%. In India, eBay currently has 5 million users and recently reduced sellers’ fee by as much as 80% for some categories to shore up interest.
Besides promoting the marketplace to sellers through fee reduction and aggressive promotion through television customers, the company also invested in its largest competitor in the country, Snapdeal. We will look for any hints of a shift in Marketplace’s revenues in terms of geography. Net revenues outside the U.S. accounted for approximately 52% and 53% of eBay’s net revenues in 2012 and 2011, respectively.
Popular eBay Apps Will Help Marketplace's Cause
ChannelAdvisor assesses that Marketplace's sales growth dropped to the lowest levels in almost two years in February. This was in contrast to its performance last year when total gross merchandise volume increased by 15% to more than $75 billion. This growth was primarily a result of the popularity of eBay’s mobile apps, site enhancements and growth in emerging markets.
Driven by eBay Mobile apps crossing the 100 million downloads threshold, m-commerce volume in 2012 was a healthy $13 billion. Mobile also attracted over 4.3 million new users to eBay in 2012, prompting sellers to list almost 2 million items per week from their smartphones on eBay. We expect that the growing smartphone penetration rate in the U.S., still at about 54% of the mobile market penetration and growing at 5% on a sequential basis, and the popularity of eBay’s mobile apps to support an acceleration of Marketplace’s revenue growth in the near term. Our expectations are supported by eBay’s efforts to become more user friendly through initiatives such as reduction of selling fees and free listings. We will also look for hints about the company’s expectations about its sales from the Americas.
PayPal To Continue Marching On Its Growth Path
PayPal accounts for about 40% of eBay’s revenues and about 50% of our price estimate. Revenues from the division have grown at about 26% during 2012 with the international business outpacing overall growth [PayPal Q4 2012 Fast Facts, PayPal, April 2013]. The international business accounts for slightly more than half of PayPal’s total revenues. With the service still having a limited international presence, we expect the international business to be the major contributor in the coming years. The division has outgrown its dependence on eBay with Total Payment Volume on eBay constituting just 33% of the overall Total Payment Volume. This has been made possible by PayPal expanding its presence offline through PayPal Here devices and mobile apps. A tie-up with Discover Financial Services will come in force in the second quarter of the current financial year. We expect PayPal to keep growing at Q4 levels and will look for growth in its offline presence.
The growing popularity and adoption of PayPal Mobile bodes well for the company and will support its growth outlook.
We have a $54 Trefis price estimate for eBay, which is 5% above the market price.
Disclosure: No positions