Find Mobile Profits on eBay

by Tom Taulli | October 18, 2012 2:22 pm

Find Mobile Profits on eBay

A few years ago, eBay (NASDAQ:EBAY[1]) seemed like a washed-up Internet operator; just an online second-hand store amid a growing field of true online retailers.

The company’s recently reported third-quarter earnings are just another reaffirmation that CEO John J. Donahoe has changed all that, and has his company back to attacking growth through mega-markets, specifically mobile.

In Q3, eBay’s revenues increased by 15% to $3.4 billion and earnings came to 55 cents a share, which was a penny above the Wall Street expectations. The company also gave a rosier outlook for the full year: eBay expects revenues of $13.95 billion to $14.1 billion and earnings per share of $2.32 to $2.35, both improved from forecasts in late August.

The conference call was rife with talk about mobile — especially concerning how important eBay’s PayPal service has become. PayPal now has more than 117 million active accounts across the globe, and the company is forecasting that its mobile revenues will reach more than $10 billion in 2012.

No doubt, a significant chunk of this will come during the Christmas season as shoppers are likely to use their iPhones, Galaxys and other smartphones to do their shopping.

However, a key part of the PayPal growth strategy is to move aggressively offline. Consider that it is integrated across retailers like Home Depot (NYSE:HD[2]), Guitar Center and Abercrombie & Fitch (NYSE:ANF[3]). Plus, PayPal also recently announced plans[4] to team up with Discover Financial Services (NYSE:DFS[5]), which will put PayPal in touch with more than 7 million merchants by next year.

Not that PayPal is the only story. Ebay also has created compelling mobile apps, which saw more than 100 million downloads in the quarter, and were used by sellers to post roughly 2 million items per week.

It’s inevitable that the smartphone will become the wallet of the future, considering it’s ideal not just for purchases, but for doing research on the products you’re about to buy. And through its numerous deals with PayPal, eBay certainly is poised to be a huge beneficiary of this e-commerce trend.

EBAY shares were up about 4% in afternoon trading, bringing this year’s returns to a whopping 64%. But despite this fantastic run, eBay still fetches a reasonable valuation. It currently trades at a price-to-earnings ratio of only 17 — not cheap, but certainly still compelling in light of eBay’s full-year revenue growth rate of roughly 20%.

Bottom line: If you’re an investor looking for a solid play on mobile, you can find it on eBay.

Tom Taulli runs the InvestorPlace blog IPOPlaybook[6], a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “How to Create the Next Facebook.[7]”  Follow him on Twitter at @ttaulli[8]. As of this writing, he did not hold a position in any of the aforementioned securities.

Endnotes:
  1. EBAY: http://studio-5.financialcontent.com/investplace/quote?Symbol=EBAY
  2. HD: http://studio-5.financialcontent.com/investplace/quote?Symbol=HD
  3. ANF: http://studio-5.financialcontent.com/investplace/quote?Symbol=ANF
  4. recently announced plans: http://investorplace.com/2012/08/discover-strikes-a-deal-with-paypal/
  5. DFS: http://studio-5.financialcontent.com/investplace/quote?Symbol=DFS
  6. IPOPlaybook: http://investorplace.com/ipo-playbook/
  7. How to Create the Next Facebook.: http://www.amazon.com/gp/product/1430246472/ref=s9_simh_gw_p14_d0_i1?pf_rd_m=ATVPDKIKX0DER&pf_rd_s=center-3&pf_rd_r=0GRB6ZMCTYDZVNG7Q7NV&pf_rd_t=101&pf_rd_p=470938811&pf_rd_i=507846
  8. @ttaulli: https://twitter.com/ttaulli

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