eBay Enters 2014 With All Engines Firing

| About: eBay Inc. (EBAY)

The continued strength in both marketplaces and payments businesses was visible when eBay (NASDAQ:EBAY) reported its Q1 2014 financial results. The company’s operations are growing like a clockwork with sustained year-over-year growth across almost all operating metrics including active buyers, number of active PayPal accounts, total payment volume and gross merchandise volume (GMV). There was some impact of seasonality in overall GMV that led to a small sequential decline. But looking at the company’s historical performance, the decline appears to be within the expected range. eBay is strengthening its position globally by improving its delivery system and boosting mobile commerce, and expects to grow its revenues by 12% to 15% in 2014.

However, we notice that the take rate has come down in the last two quarters. This can be partially blamed to a slowdown in StubHub’s business, which has higher than average take rate. eBay needs to address this in order to maintain its profitability.

We are in the process of reviewing our price estimate for eBay in light of recent earnings, and will have an update ready soon. Our current price estimate for the company stands at $60, implying a premium of about 10% over the market.

eBay’s Commerce Volume Growth Remains Impressive, Mobile Focus Clearly Visible

In Q1 2014, eBay enabled $58 billion of commerce volume which represented an increase of roughly 24% over the first quarter of last year. This growth was driven by its focus on mobile, cross-border trade, especially in China, and the symbiotic relationship between eBay’s marketplaces business and PayPal. The company enabled about $11 billion of mobile commerce volume during the quarter, which accounted for roughly 19% of the total enabled commerce volume. In this regard, we believe that eBay is doing at least as good as Amazon (NASDAQ:AMZN) or may be better, as the latter reportedly earned roughly 5% to 8% of its revenues from mobile platform in 2012.

According to eMarketer’s forecast, global business-to-consumer e-commerce sales are expected to jump by roughly 20% in 2014, amounting to $1,500 billion. This expected growth is higher than what the industry saw last year, and much of it will be driven by the continued uptake in mobile usage in emerging markets, expansion into new regions and advancements in payment and shipping services. We believe that eBay will continue to benefit from these tailwinds and achieve its 2014 targets.

Service Enhancements Will Help

eBay has been aggressively rolling out its new delivery system of ‘click and collect’. The company has signed a partnership with Argos store chain in the U.K., wherein customers can choose from more than 6 million listings from over 100 sellers and collect their purchased items from more than 100 Argos stores across the country. This is somewhat similar to what Amazon does, and will help eBay compete better globally. The company is testing similar strategy in the U.S. as well. eBay is also promoting PayPal’s credit features in order to drive sales. However, the revenue contribution of such services still remains small at this point. Its ‘Bill me Later’ service accounted for 4.4% sits U.S. addressable GMV and 2.1% of U.S. merchant services total payment volume.

Disclosure: No positions