eBay's Q1 Earnings Call Should Give Investors Optimism For Continued Growth

| About: eBay Inc. (EBAY)

eBay (NASDAQ:EBAY) stock has rewarded investors with a 56.4% return over the past year, rising from $35.87 on April 18, 2012 to a closing price of $56.10 on April 17. After the close on Wednesday, eBay released 2013 Q1 earnings, reporting EPS of $0.63, which beat estimates by $0.01, and revenues of $3.75 billion, missing estimates slightly by $20 million. The company also lowered its guidance for 2013 Q2 to $0.61 to $0.63 EPS and $3.8 to $3.9 billion revenue, below consensus estimates of $0.66 EPS and $3.95 billion in revenue.

Investors were not impressed with the report, sending eBay's stock price down 2.6% in after hours trading. When a growth company like eBay misses revenue estimates and adjusts guidance downward, it is certainly understandable that investors might be skeptical of future growth prospects. But before dumping your shares, consider some highlights from the Q1 2013 earnings call.

Over the past year, eBay has grown EPS 14.5%, from $0.55 in 2012 Q1 to $0.63 in the last quarter. Similarly, revenue has grown 14.5%, from $3.28 billion in 2012 Q1 to $3.75 billion in 2013 Q1.

eBay has been at the forefront of the mobile E-commerce revolution. In Q1, the company added 2.8 million new users to eBay and PayPal through mobile devices. The company reports that more than half of users and volume come from outside the United States, and it sees tremendous growth opportunities in emerging markets such as Russia, China, India and Brazil.

PayPal finished the quarter with 128 million active accounts globally, an increase of 5 million over the quarter. Revenue from PayPal reached $1.5 billion, an 18% increase from 2012 Q1. Over the past 12 months, the company reports that one out of every four PayPal users has made at least one transaction via a mobile device. Projecting this ratio over 5 million new users accounts for 1.25 million account holders utilizing a mobile device to make some kind of payment, and that only includes new account holders for this quarter.

PayPal is also expanding globally. More than 2,700 retailers in Japan are now accepting payments through PayPal Here, the company's mobile credit card reader. PayPal has also been integrated into LG's smart TV platform, now available in the U.S., Canada and the U.K.

Marketplaces, eBay's core business, increased revenue by 13% from 2012 Q1. The number of active users also increased by 13%, to 116 million. Marketplace sold items increased by 11.7%. Bill Me Later, which offers consumers the opportunity to make purchases through a line of credit, rather than a credit card, increased payment volume by 31% from 2012 Q1 to $849 million.

At the company's analyst day late last month, CEO John Donahoe predicted eBay would enable $300 billion in commerce in 2015, a 71% increase from $175 billion in 2012. In 2013 Q1, eBay enabled $49 billion in commerce in various ways, including Marketplace sales and PayPal transactions, an increase of 19% over 2012 Q1. Projected over four quarters, this would account for $196 billion in commerce for 2013. Projecting this figure over four quarters is problematic, however, for a number of reasons, such as the potential for consumers to cut spending in light of some unforeseen macroeconomic factor(s).

However, I believe the $196 billion projection will prove to be quite a bit lower than the actual total, simply because of the ever-increasing numbers of users of both eBay Marketplaces and PayPal. Also, the partnership between eBay and Discover (NYSE:DFS) is set to go live in Q2, giving PayPal exposure to millions of U.S. retailers just in time for the holiday season.

Conclusion: With a forward P/E of 17.37, eBay's stock is primed for growth over the next couple of years. I believe we've only seen the proverbial tip of the iceberg when it comes to PayPal's growth. eBay has proven to be a market leader when it comes to mobile E-commerce and is just now expanding into several key emerging markets. Investors will likely punish the stock for missing revenue and lowering guidance for Q2. Long-term growth investors would be wise to pick up shares on the dip.

Disclosure: I am long EBAY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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