March 04, 2014 - Profit From Mobile Payment Processing by Zacks Investment Research
I remember a time where credit cards were processed using a prehistoric method whereby store owners had a machine to physically imprint the front of a card onto carbon paper. That sound they made as they ran over the top of your Visa card put a gleam in the eye of shop keepers and instant regret on the face of boyfriends the world over. This of course was before the internet, before smart phones, and before eBay.
In today's fast paced, internet-driven world merchant services have evolved to the point where you don't even need a physical credit card to spend money. All you need is a smart phone and an app. Rivals have popped up all over from Square to Google Wallet to LevelUp. This market has been forecast by some to balloon from a $235 billion business in 2013 to over $720 billion by 2017 in the US alone. It's no wonder that some big tech names have been aggressive in this space.
In the early days of the online transactions, especially with eBay (EBAY - Trend Report), PayPal was the most trusted name in the business. It was easier to process eBay purchases with PayPal than with any other vendor. The transactions were guaranteed by PayPal and any time you had trouble with a purchase eBay and PayPal worked hand in hand to get your money back and make sure you didn't get ripped off.
EBay liked PayPal so much they bought them in 2002. Even with that huge advantage of being such a large name in the space, PayPal has struggled to make the transition to mobile payment processing. Last year PayPal ended up with $27 billion in mobile payment volume, accounting for about 10% of the market. Overall, PayPal moved $180 billion worth of payments total last year. PayPal is responsible for 36% of eBay's profits and a huge driver of growth.
Carl Icahn has been urging eBay to spin off PayPal for the good of PayPal and the good of investors. Icahn has accused eBay management of being asleep at the wheel and neglecting the potential of PayPal. Other large names such as Elon Musk argue that eBay owning PayPal is like Target owning Visa. It is putting PayPal at a disadvantage with online retailers that compete with eBay. Perhaps all this arguing has finally woken up eBay stock.
A look at the technical picture on eBay shows us there is plenty of potential for the online retailer. With 2013 firmly in the rearview mirror, the online retail giant has broken the trend line resistance that kept you in the doldrums all last year. Renewed excitement for the stock is most likely directly tied to growth in the PayPal side of the business. The rally we have seen the last month or so has changed a few key technical features. The 25 day moving average shifted by 5 days (25x5 SMA) is support below the stock price and now has a positive trajectory and slope for the first time in a long time. However, the stock has slowed down here just below the $60 level. Couple that with an overbought stochastic reading along with a bearish crossover and we may have a stock that has run out of gas.
Overall Ebay is a Zacks Rank #4 (Sell) with a technical picture that seems a bit overbought. PayPal is fueling the growth but overall earnings estimates have been coming down for the stock. If you are looking for a way to invest in the future of mobile payment processing, eBay is not the pure play to look for given the fact that 64% of its money is made in the now "old fashioned" online marketplace.
In my never ending search for profits as I dug through the research on mobile processing I found another way to participate in the space. Google (GOOG - Trend Report) has an entry in this market called Google Wallet. In reading all about how it works I came across something known as a Near Field Chip (NYSEMKT:NFC). These small chips in phones allow users to send data across a short range. Kind of like tapping my Ventra card on the CTA or Visa at McDonald's, the chip is used by Google Wallet to pay for items at an enabled POS.
NXP Semiconductors (NXPI - Trend Report) makes these chips for smartphones. This part of NXP's business grew at 19% in 2011 and a whopping 41% in 2012. As more phones come with these chips built in you could see more explosive growth for the company. A look at the earnings picture should have investors saying "Cheese" as well. The stock carries a Zacks Rank #1 (Strong Buy) and leads an industry with a Zacks Industry Rank in the top 27%.
As for the technical picture, you can only describe this stock as onward and upward. The last time the stock spent any meaningful amount of time below the 25x5 was April 2013. Since then it has been a steady ascent to the heavens, doubling to over $57. Now it's breaking out of previous resistance and marching steadily higher. With an overbought stochastic and the stock breaking out I would try my best to be patient and wait for the stock to take a small breather before I jumped in with both feet.
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