The American consumer’s love of shopping is a growth driver that packs its biggest punch during the holiday season. An appealing play now on strong retail spending as well as the rapid proliferation of electronic commerce is eBay Inc (EBAY).
EBAY has remained stuck in a trading range between about $50 and $55 a share for the past two years and is now priced at $54.80 a share. I believe that with the PayPal spinoff coming, mobile shopping taking off and new exposure to Latin American markets, eBay’s stock could move higher and this is a good time to buy.
An E-Commerce Giant
Ebay hosts automated online commerce platforms that enable businesses and individuals to list items and perform sales and purchases over the web in an auction or fixed-price format. The company has changed the buying — and selling — habits of millions of people around the world.
The company is continuing its transformation from an online auction exchange of used goods into a global commerce giant. It has been particularly adept at creating new mobile apps. This farsighted strategy should drive eBay stock over the long-term as the volume of mobile-based retail transactions surges.
In fact, eBay launches new features on a steady basis. Latest case in point: On Dec. 4, eBay unveiled the “Innovators Collective.” This discrete section of eBay highlights new tech-focused household products in categories from home electronics to household consumables. It showcases just a dozen or so products now, but eBay says it could expand to about 20 products by the time the holiday season ends.
The Samba Effect
At the same time, eBay is pushing into untapped emerging markets, especially Latin America, where e-commerce is dancing to an ever-quickening beat. Latin America is home to an expanding, increasingly wealthy and computer-literate middle class. Increasing numbers of these Latin consumers are exercising their purchasing power online.
Ebay recently acquired an 18% ownership stake in Buenos Aires, Argentina-based MercadoLibre (MELI), the leading e-commerce player in Latin America. MercadoLibre operates MercadoPago, an integrated payments platform akin to eBay’s PayPal over which shoppers send and receive payments over the web.
Often referred to as “the eBay of Latin America,” MercadoLibre (which means “free market” in Spanish) operates in a manner familiar to any consumer who has used eBay or online retailing behemoth Amazon (AMZN).
As the largest company of its kind in Latin America, MercadoLibre enjoys a market dominance with competitive advantages that even Amazon can’t match. Latin American cultures represent a rich stew of different dialects, currencies and customs, imposing a barrier to entry for new entrants.
Spinoff in the Works
On Sept. 30, eBay announced that it would split its e-commerce website and its highly profitable PayPal payment division into separate publicly traded companies. The move came in response to pressure from shareholder activist Carl Icahn, the erstwhile corporate raider of the go-go 1980s. The spinoff would give investors the opportunity to tap PayPal’s faster growth prospects. Slated for completion in the first half of 2015, the spinoff also would free up more cash for eBay to fund its own operations and overseas expansion.
Many investors think eBay will be dead money after the PayPal split, since PayPal has been contributing the bulk of the company’s growth. But I expect eBay’s current strategies to continue bearing fruit.
Ebay reported that third-quarter 2014 revenue came in at $4.4 billion, an increase of 12% compared to the same period a year ago. Earnings reached $673 million, a year-over-year decline of 2%, but earnings per share hit 54 cents, an increase of 2% compared to the same quarter a year ago.
PayPal posted another strong quarter, with mobile payments volume up 72% year-over-year to $12 billion. PayPal is expected to process 1 billion mobile transactions in 2014.
Bottom Line
The enormous growth of e-commerce around the world combined with eBay’s expansion into Latin America and its well-timed spinoff of PayPal should prove glad tidings for eBay stock throughout the holiday season and into the new year.
As of this writing, John Persinos did not hold a position in any of the aforementioned securities.
