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Make Your Bid to Buy eBay Today

Look deeper to find that eBay is now more than just auctions

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eBayLet me say right up front that I love eBay (NASDAQ:EBAY). I use it probably three times a week for everything from Spiderman pajamas for my son to the current bidding war I’m in for an autographed poster of hockey legend Bobby Orr flying horizontally across the ice.

I’m sure you’re very familiar with eBay, so we don’t need to spend a lot of time talking about what the company does. But if you think of eBay as still just online auctions, let me give you an update: It has developed from a fledgling online auction bazaar into a vital e-commerce center. EBay now provides an online platform for buyers and sellers in nearly 40 markets across a lot of product categories – vehicles, consumer electronics, clothing, books and yes, every collectible imaginable.

Here’s the important point: With $69 billion in merchandise volume in 2011, eBay facilitated more than 15% of the world’s e-commerce market, which totaled more than $450 billion.

Still, you may be wondering why this 15-year-old business that saw its stock grow like a wildflower during the Internet bubble more than a decade ago is a game-changer today. The main answer: PayPal. PayPal’s status as a leading online payment standard makes eBay an important e-commerce player. We mentioned earlier that PayPal’s net total payment volume in 2011 was $119 billion. That’s 20% of the global online payment industry.

Not Your Father’s eBay

Amazon (NASDAQ:AMZN) may be the leader in online shopping, but eBay will be an increasingly important player in e-commerce during the next several years because of a growing portfolio of large retail partners, adjacent marketplace offerings, and PayPal’s assorted capabilities.

In fact, eBay’s abilities to facilitate traditional offline commerce through mobile payments and in-store PayPal point-of-sale tests are under appreciated by the market right now. With PayPal’s expanding offerings, low costs and high efficiency, eBay’s will be an increasingly vital facilitator of global commerce, which should translate into increased profitability and a higher stock price.

The company consists of three main units: First is what it calls “marketplaces,” which is bringing together buyers and sellers – the roots of the company. The business has expanded well beyond to also include sites like StubHub, Fashion, Motors and They have also added technologies like RedLaser in mobile commerce and both Milo and Hunch in search. Milo enables search for goods at local retailers, and Hunch incorporates customers’ needs and tastes into search.

The second is payments, and there is where PayPal, the real game-changer, comes in along with other services like Bill Me Later and Zong. PayPal contributed 38% of eBay’s 2011 revenues. Buyers like the security and mass acceptance of PayPal, while sellers like its lower fraud rates and large user base.

These benefits were originally realized on eBay, where around 85% of transactions are through PayPal. Now, PayPal is accepted by more than 60 of the top 100 online retailers and processes more than 25% of domestic online retail transactions.

With more than half of the world’s Internet users coming from developing countries, PayPal, like VeriFone (NYSE:PAY), has tremendous global potential. PayPal makes up 60% of eBay’s global sales volume right now, and management believes it will double global cross-border payment volumes to $40 billion–$45 billion by next year.

According to industry research firm Forrester, payment volumes have grown at a compounded annual rate of 25% the last five years, which is about three times as fast as the online retail market.

In addition to that trend continuing, other growth channels for the payment division include:

  1. PayPal’s offline point-of-sale capabilities, which are being rolled out to as many as 20 national retailers this year;
  2. increasing adoption of mobile commerce (eBay mobile accounted for about $5 billion in merchandise volume in 2010, with PayPal mobile generating $4 billion in payment volume); and
  3. additional payment innovations, including Zong’s ability to verify and clear payments through existing wireless carriers.

Article printed from InvestorPlace Media,

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