eBay's (NASDAQ:EBAY) stock more or less maintained its level in 2013 as the company carried the momentum throughout the year. The marketplaces business continued its recovery and PayPal gained an impressive number of active accounts worldwide. The international growth kept up with that in the U.S. as eBay expanded cautiously in Europe and some of the emerging markets in Asia. As we look back at 2013, we see eBay positioning itself strongly for 2014, despite some concerns around the slowdown of e-commerce growth in the U.S. Below we highlight eBay's notable achievements during 2013.
Our price estimate for eBay stands at $54, implying a slight discount to the market price.
PayPal Continued To Gain Accounts
We estimate that PayPal constitutes close to 45% of eBay's value. The service had 137.4 million active accounts globally at the end of Q3 2013, and this figure has grown at an impressive rate of 5 million per quarter in 2013. In addition to this, the number of payments made per PayPal account are increasing, which reflects the global growth in e-commerce. Excluding currency movements, PayPal's revenues grew between 18%-20% for each of the quarters in 2013. This can be attributed to strong growth in the total payment volume, partially offset by a decline in the average payment size which has been coming down in recent years. In addition to this, the business also found some support from an increase in its penetration rate on eBay.
Mobile is going to be one of the key growth areas for PayPal, and the company is promoting mobile transactions as an alternative to payment by cards through its mobile app. The service works through the PayPal app that customers can use to check-in to the store. PayPal has partnered with point of sale technology companies such as MICROS, Island Pacific, Kounta and Vend and will soon add more retailers and hospitality partners into the mix. eBay expects PayPal to do $20 billion of mobile commerce and payments volume in 2013.
International Growth Remained Strong
eBay's international growth remained strong in 2013 as the company benefited from some economic tailwinds due to the eurozone and the U.K. that are slowly coming out of the recession, as well as from its continued investments in emerging markets. It signed a deal with Argos, a store chain in the U.K., to allow local shoppers to pick up their online purchases from eBay at local Argo stores. It also invested $50 million in Indian e-commerce site Snapdeal. We believe that eBay will continue to focus on expanding its international presence and lay greater emphasis on PayPal's growth in emerging markets. The company's revenues from international markets grew by more than 14% in first nine months of 2013, keeping up with the growth in the U.S.
Statistics from prior years show a similar trend for eBay. eBay's international revenues jumped from $4.6 billion in 2008 to nearly $7.3 billion in 2012, registering a compounded annual growth rate (CAGR) of 12% (source: SEC Filings). Most of this growth came in the last two years, when the figure stood at 21.5%. While Germany saw a slowdown in the growth in 2012, other markets including the United Kingdom and the rest of the world continued to grow at 20%+ rate. Germany and the United Kingdom together accounted for over 48% of eBay's international revenues in 2012, and close to 25% of its global revenues. Clearly, these two markets are very important for the company.
eBay Expressed Renewed Interest In China
eBay pulled out of China in 2006 due to tough local competition, but recently expressed that it has not given up on the market. The company mentioned that there is a huge accumulation of wealth in the country and Chinese consumers are going to be an important part of the global economy in the future. Therefore, it is imperative for eBay, or any other online retailer, to establish a presence in the regional market.
eBay can add 10% to its value if it is able to increase its gross merchandise volume by another $50 billion over our current expectations. We currently forecast this figure for eBay to increase from $75 billion in 2012 to $130 billion over the next six to seven years. This may be achievable given the strong e-commerce growth in China, provided that the company is able to compete effectively against local online retailers. This incremental gross merchandise volume will imply another 70 million active users over our current forecast assuming that the average spend per user will not be meaningfully different. In reality, the figure is likely to be lower for Chinese consumers which indicates that eBay will need many more users in the country. It must be noted that the 10% upside estimate is just from the marketplaces business. The actual upside could be much more as eBay will also promote PayPal, which is an equally important business segment for the company.
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