At the end of 2013, eBay (EBAY) operated several platforms: marketplace, payments and GSI. EBay’s primary business is the facilitation of commerce for small- and medium-sized merchants around the world through its platforms. In addition, eBay also generates revenue via advertising and marketing and provides commerce technologies, omnichannel operations and marketing solutions for large, nationally recognized retailers and brands.
EBay is best known for its marketplace, which brings buyers and sellers together through various websites and mobile applications. EBay’s marketplace segment includes eBay’s name sake website, eBay.com but also StubHub, Half.com and a series of classifieds websites. EBay facilitates mobile commerce through RedLaser, Milo.com, Hunch and vertically through eBay Fashion, Daily Deals and eBay Motors. EBay’s multi-platform approach allows sellers and buyers to choose the vehicle that best meets their needs in purchasing the products and services they desire.
EBay payments is made up of PayPal, an online payment system, Bill Me Later, a consumer credit services business, Zong which allows users to pay for digital goods and have the transaction charged to their phone bill and BillSAFE which is only offered in Germany and provides payment services to merchants.
GSI Commerce, now called eBay Enterprise, offers a range of solutions designed to power merchants’ online businesses including technology and payments (webstore & mobile, commerce exchange and multi-channel and payments), product fulfillment and customer care. In addition, eBay’s Global Commerce Services helps client acquire new customers, convert website visitors into buyers, build customer loyalty and drive revenue as a full service digital marketing agency.
EBAY Earnings Summary and Fight With Carl Icahn
In January, eBay reported that fourth quarter 2013 revenue increased 13% to $4.5 billion and net income grew 14% to $850 million or 65 cents per share driven by strong top line growth. EBay’s full year 2013 revenue grew 14% and GAAP earnings-per-share grew 9%. EBay payments showed the most growth for 2013 with 19% increase in revenue and a 24% increase in payment volume, which was also a key point in a letter from activist investor Carl Icahn that eBay announced receiving in the earnings release. EBay announced that Mr. Icahn nominated has nominated two of his employees to eBay’s board and submitted a non-binding proposal for a spinoff of its PayPal business into a separate company.
In February, eBay responded to Carl Icahn’s letter stating, “PayPal and eBay are better together” and lambasting Carl Icahn’s opinion in regards to current eBay board members. The mudslinging between the two parties continued through the second quarter and culminated in a settlement in April.
In the first quarter, eBay reported that revenue increased 14% to $4.3 billion, non-GAAP earnings increased 11% to $899 million, but GAAP earnings were negative $2.3 billion due to a significant tax charge in order to repatriate $6 billion in earnings to enhance financial flexibility. In the second quarter, eBay reported revenues increased 13% to $4.4 billion with GAAP earnings increasing to $676 million, but growth was hurt by an issue that forced many eBay users to reset their passwords.
In September, eBay admitted that maybe PayPal and eBay are not better together and announced the separation of PayPal into an independently traded public company. Earlier in October, eBay reported third quarter results with total sales continuing their upward progress with revenues increasing 14% to $4.4 billion and GAAP earnings of $673 million driven by continued strong revenue growth.
EBay – Stock Analysis
Both the S&P 500 and eBay are coming up off of a significant dip earlier in the month due to bad overall market conditions caused by pessimism within the overall economy.
The 12-month consensus analyst estimate is $59, a reasonable premium to the current trading range, but there is significant negative earnings momentum with 12 downgrades in the last 90 days. EBay’s forward price to earnings ratio is a reasonable 15.8 compared to the S&P’s 17.1, but with a price/earnings-to-growth ratio of 1.5 eBay stock looks fairly valued. Add the uncertainty of the PayPal spinoff and eBay is a stock I would choose not to hold in the short-term, but with the increasing move to e-commerce and the mining of consumer data, eBay looks to be a company well-positioned to grow in the future.
As of this writing, Kenneth Fick did not hold a position in any of the aforementioned securities. Write him at kfick@piercethefog.com or follow him on his blog at www.piercethefog.com.
