EBay Inc. (NYSE:), which is best known for its e-commerce platform eBay.com and its online payments gateway PayPal, has had a disappointing holiday season, with same-store sales lagging behind those of Amazon (). The company's performance has been generally poorer than Amazon's and falls short of industry growth.pixelsaway / 123RF Stock Photo
However, the company has also been in the news for acquisition of Braintree for its subsidiary PayPal. Though this will probably have no positive impact on eBay's indices for , analysts generally agree that this will prove invaluable as the company seeks to tap into the growth of mobile payments. Further, eBay has been showing tremendous growth in international markets. These factors coupled with a decent balance sheet (though lagging behind industry growth as mentioned above) reflect that the company has ample growth potential going forward.
Disappointing December sales
A ChannelAdvisor published recently showed that compared to the same period last year eBay same store holiday sales rose by 9.6% while Amazon's progress in the same time period was 25.2%. More specifically between 16th and 22nd eBay's same store sales rose 18.1% to Amazon's 38.9%. This gap between the two key players in the online retail segment can be seen in YTD returns as well where Amazon's impressive 54.92% YTD returns easily overwhelm eBay's 7.46% YTD returns.
PayPal, Braintree and the mobile future
About 45% of eBay's comes from its subsidiary payments portal PayPal. PayPal has been showing steady growth in number of active accounts with about 5 million accounts being added every quarter of 2013. Revenue growth has been in the range of 18-20%. While average payment size has fallen, the sheer volume of transactions has more than made up for it.
As one would have guessed, this reflects the success of e-commerce in general. This e-commerce development has allowed another web and payment processing company, Braintree, to rise to prominence. More specifically, the company acquired Venmo, which is a mobile payment solution that allows people to send money to others for free. With the $800 million acquisition of Braintree, PayPal will, therefore, be able to use the rapidly growing customer base (currently around 40 million) of Venmo to expand its mobile payment facilities. This will give PayPal a commanding position in mobile payments industry that is expected to grow by 63% (according to the Internet Retailer 2014 Mobile 500 report) by the end of 2013 when compared to what it was at the end of 2012.
EBay's international moves
EBay's revenue from international markets grew by 14% in the first three quarters of 2013 as the Eurozone and UK emerged gradually from the recession. EBay's global revenues had grown from $4.6 billion in 2008 to $7.3 billion in 2012. From this perspective the company's deal with Argos, through which customers buying goods online will be able to pick up their deliveries from Argos stores, appears to be a highly strategic move. Further, eBay is confident of growth in Asian markets and is set to benefit from the $50 million investment in Indian online shopping portal Snapdeal.
The balance sheet
EBay's earnings has been mixed while YoY revenue growth has stayed in the range of 14-14.40% for the first three quarters of 2013. Further, the company's YTD return of 7.46% is not only below Amazon's, but also lower than those of the sector (33.89%). EBay's debt to equity ratio stands at 0.20, which is relatively low but higher than the industry average. Net operating cash flow growth of 15.59% is also below the industry average growth rate of 23.64%.
However, it should be noted that these figures are in themselves not dismal. Rather, when we consider the good growth prospects generated by the above developments it becomes clear that eBay is poised to make good use of this balance sheet to ensure decent growth next year.
The above analysis shows that eBay's performance has not been on par with Amazon, and its balance sheet is not one that outshines the industry averages. However, the acquisition of Braintree, partnership with Argos and investment in Snapdeal, to name a few, should drive the company's growth in the coming years. As such, while eBay is a comparatively poor performer, for the sector it is by no means a bad one.Investors who have already bought into the company's stock would be, therefore, advised to "hold" while those who do not have eBay in their portfolio may consider alternatives before buying into the company's stock.
Author: Justin Martin