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On July 17, eBay (NASDAQ:EBAY) reported its most recent quarterly numbers to the public, and proceeded to get crushed in the next market session. The stock traded down more than 6% on an EPS number one cent below analyst expectations and guidance near the low range of their projections. This shareholder reaction to a very minimal earnings miss in an otherwise solid quarter shows a potential opportunity to step in and start a position in eBay.

The company has a strong track record of growth in the past, both from an expanding online marketplace and a growing impact from PayPal and its extensions. eBay also has large insider ownership and upcoming catalysts that could help drive earnings and share prices up over the medium and long term. Buyers who have been looking for an entry point should take this opportunity to go long a popular tech stock that has more factors in its favor than its recent performance would suggest.

Overview

To get everyone on the same page, eBay is a global online marketplace established in 1995 that allows both buyers and sellers to meet and exchange products smoothly and efficiently. The company has expanded to enable online commerce in almost every country on the planet, with a huge variety of products. If you haven't heard of eBay, you've probably heard of PayPal, a subsidiary of eBay which allows individuals and businesses to quickly and securely send and receive payment online. PayPal currently accounts for 42% of eBay's revenue, with 132 million active users in 193 global markets. Growth in this area has been very strong for eBay, with total payment volume for PayPal coming in at $43 billion, up 25% from the same period in 2012. eBay also operates in other online markets, such as Shopping.com and StubHub, which provides event tickets. These business segments complement each other to progress eBay's strategy of providing a growing commerce experience to customers around the world and make global transactions easier for both people and businesses.

Management

eBay is currently led by CEO John Donahoe, who has held this position since March of 2008. Donahoe has an extensive resume, with a degree in economics from Dartmouth and an MBA from Stanford Business School. After college, Donahoe became successful through Bain & Company, rising from an associate consultant to become the firm's President and CEO in 1999. In 2005, Donahoe joined eBay as the President of eBay MarketPlaces, where he was in charge of growing the company's core business segments. During his time in this division, Donahoe oversaw the acquisitions of both Shopping.com and Stubhub, which contributed greatly to eBay's overall success and outreach and saw the Marketplaces division's revenue double in three years. In 2008, Donahoe took over as CEO and has since led the company through many challenges, including the financial crisis and Great Recession thereafter. Donahoe's experience from his time at Bain and at eBay shows his knowledge of the company's strategy and his ability to drive growth, which should bring steady gains for shareholders in the months and years to come.

Insider Ownership

One of eBay's strengths as an attractive investment is the number of shares owned by eBay executives and employees. High insider ownership in a company is a very bullish sign because it shows that the people who are responsible for the company's success have a vested interest in the performance of the stock. eBay's insider ownership currently stands at over 10% of the company, which means that insider interest is very similar to the interest of shareholders. CEO John Donahoe alone has over 511,000 shares in the company, which amounts to over $26 million of his own wealth riding on the success of eBay. On July 18th, eBay's 6% drop meant that Donahoe incurred a loss of $1.6 million, something worth noticing. If the CEO's large stake in his own success doesn't contribute to the company's performance, I don't know what will. Investors should feel comfortable in the fact that if they have a bad day and lose money in eBay, management does too.

Another pattern that should impress buyers is the steady rise in insider buying over the past few months:

MonthMarchAprilMayJune
Net Insider Change-42,593320,480444,271430,545

Since March of this year, net insider ownership has increased by almost $65 million at current prices. When insiders are buying their own stock, so should other investors, because company employees know the future of their success better than others do, and are willing to put their money where their work is, so to speak.

Catalysts

Looking forward in eBay's future, there are a couple factors that can contribute greatly to the company's bottom line. The largest potential growth opportunity for eBay is its alliance with Discover (NYSE:DFS) to provide PayPal services to thousands of small businesses nationally. By the end of 2013, eBay expects PayPal to be accepted as a form of payment in over 2 million stores through their partnership. This will increase PayPal's store presence by a factor of eight by the end of the year, which could mean an explosion of growth in cash flows coming from the increased traffic in physical commerce, not just online transactions. This partnership shows that PayPal is tightening its grip and expanding its reach into mobile payments with businesses and customers, which will provide a larger and larger income stream for eBay's balance sheet.

At current levels, eBay trades at 26 times earnings, which means that investors are valuing the company's strong growth at a healthy level and are willing to pay up for a fast grower such as eBay. In its earnings call, eBay reported that the company expects EPS to be anywhere from $2.70 - $2.75 a share. At current multiples, this puts eBay's year end price at around $70 a share, 33% higher from where it stands now. This means that the growth investors are valuing is still very real, and could boost the share price tremendously going into the second half of 2013.

Conclusion

As the United States economy starts to steadily show signs of progress, consumers and businesses will start to venture out and spend more money. eBay has positioned itself to benefit greatly from this surge in transactions, and has enabled people to buy and sell faster and easier than ever. This advantage will help the company secure more customers and partners to raise its profits and its share price. The drop on July 18th was a momentary hiccup, one that should be met with enthusiasm, not panic. Buyers can now pick up a fast growing company at a reduced price and can see the outsized returns over the coming months. Investors will see the extraordinary growth of both eBay's online marketplace and PayPal's financial service and pay up to have a piece of the success. With management motivated to succeed and an eager customer base willing to use its services, eBay has a bright future ahead.

Source: eBay: Earnings 'Miss' Is Your Time To Buy