eBay (EBAY) continued its strong performance in the first quarter of 2013 as growth in new users lifted net revenues by 14% y-o-y to $3.7 billion. The trend was helped by the ongoing adoption of m-commerce and the company’s expansion into international markets. It added over 2.8 million new users to eBay and PayPal through mobile devices in Q1. The digitization of local storefronts presents an enormous opportunity for the company, and we expect it to continue its impressive run in the near term. This should help eBay achieve its target of $300 billion in commerce volumes by 2015, up 70% from 2012. It took its first steps in this direction by registering $49 billion in commerce volumes in Q1, up 19% y-o-y.
The company’s recent performance was helped by its continuing push for global expansion. More than half of its users and commerce volumes now comes from outside the U.S. The company plans to continue focusing on emerging growth markets such as Russia, Brazil, India and China. It is working to expand PayPal’s offline presence to drive future growth. PayPal’s tie-up with Discover Financial Services (DFS) will come into effect in Q2 and its collaboration with ATM Company NCR will expand its presence to restaurants and gas stations.  We expect PayPal to lead revenue growth for eBay in 2013 and soon overtake Marketplaces to become the largest revenue contributing segment. Here we take a look at how eBay’s primary businesses performed in Q1 and the trends that will affect them in 2013.
PayPal Drives eBay’s Growth
PayPal had a strong quarter with revenue up 20% to $1.5 billion driven by PayPal’s adoption as a reliable payment gateway. Expanding merchant coverage through hardware launches to support offline presence and global expansion supported the rapid growth in PayPal’s adoption. It finished the quarter with 128 million active accounts globally, adding 5 million new active accounts during the period. eBay stated that over the past 12 months, one out of every four PayPal account holders made at least one purchase through mobile. We expect PayPal’s adoption growth rate to accelerate as its in-store point of sale solution becomes available in more stores beyond the almost 20,000 retail locations currently and the Discover partnership goes live in Q2. The growth will be helped by global expansion as the chip and pen version PayPal Here becomes available across Europe.
eBay’s other payment service, Bill Me Later, also had a good quarter. Standalone, Bill Me Later enabled Total Payment Volume of $849 million, up 31% y-o-y. The service’s penetration as a funding source in the Paypal Wallet was ~4% share on eBay and ~2% on merchant services. This helped improve PayPal’s funding mix and reduce funding costs. We expect Bill Me Later’s increasing relevance to further help PayPal reduce costs.
Marketplaces Keeps Pace With PayPal’s Growth
In Q1, eBay’s core Gross Merchandise Volume (GMV) grew 13% y-o-y to $18 billion. In the U.S., core GMV was up 16% to $7.4 billion. Global active users increased 13% to 116 million. The company attributed the strong performance to continued site improvements such as streamlined registration and checkout and the full launch of a new look and feel in the U.S. and select international markets.
The quarter further underlined eBay’s growing emergence as a retail destination - pitting it as an alternative to Amazon.com. During the quarter, fixed price listings accounted for 68% of global GMV. eBay also announced a simplified pricing structure for U.S. sellers, including free listings for customers and eBay store sellers in Q1. We expect the benefits of the new pricing structure to become evident in Q2. Besides the effect of a new pricing structure, marketplaces’ performance in Q2 will also be helped by the company’s push in BRIC (Brazil, Russia, India and China) countries. The company officially launched its localized website in Russia in Q1 and a full marketing campaign, which includes TV, is set for launch in Q2. In India, the company recently reduced its fee to attract sellers.
GSI Commerce Matches Steps Towards Growth
GSI’s ability to enable its clients to grow faster than the e-commerce market has led leading retailers and brands like Kate Spade and Dick’s Sporting Goods to sign up for its services. The segment recorded revenues of $236 million in Q1, flat over last year while same-store sales grew 16%. This was due to the combined effect of strong volume growth and a lower take rate. eBay now expects the continued integration of GSI and its ability to deliver innovative omni-channel solutions to support similar growth in the near future. The company expects to add 30 new clients by the year-end.
We believe that GSI’s popularity with retailers will help eBay’s plans for PayPal. PayPal’s coverage is currently more than 90% of GSI’s client volumes and its share of checkout was 14% during the quarter. With GSI leveraging eBay technologies such as Red Laser and Magento to build solutions for clients, we expect GSI’s popularity to increase in the near term.
We currently have a $54 price estimate for eBay which is being revised.
Disclosure: No positions.