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Staying Away from eBay Might Be the Biggest Mistake

May 07, 2014 | About:
Suravi Thacker

Suravi Thacker

1 followers

Payment technologies have evolved manifold over the last few years as players such as eBay (EBAY) and Amazon (AMZN) are making it important for people to shop online. Customers are now getting addicted to online shopping and making payments through gateways such as PayPal. Further, the holiday season has been more crucial to the online retailers since colder than usual weather kept customers at home, making them shop from online stores for all their needs.

Therefore, both eBay and Amazon posted great results for their recently ended quarter. eBay’s first quarter numbers beat the analysts’ estimates as both the top line and the bottom line moved north. However, a not so good outlook resulted in a decrease in its stock price.

Indeed a Great Quarter

eBay’s revenue surged 13.6% over last year, registering a total of $4.26 billion, as revenue from both marketplace and PayPal increased. Marketplace, which makes 56.5% of total revenue, grew 10% and revenue from PayPal jumped 19%. Also, adjusted earnings surged 11% to $0.70 per share, whereas analysts were expecting it to be $0.67 per share.

PayPal has indeed been a great performer with a 27% increase in its volumes during the quarter. Also, its customer base increased to a total of 148 million accounts, an addition of 5.8 million accounts. PayPal has made a number of efforts to make life easier for its customers. For instance, it plans to introduce a check-splitting functionality for point-of-sale systems at restaurants.

However, rival Amazon’s performance was better with an increase of 23% in its top line, clocking in at $19.74 billion in its recently reported quarter. Even earnings jumped a whopping 32% to $108 million, beating analysts’ expectations. Moreover, the results were good despite an increase of $20 in annual fees.

Key Drivers

Nonetheless, eBay is trying to combat competition and grow its business through acquisitions. It acquired Braintree in December last year and acquired PhiSix in February this year. Braintree is a payment gateway company and is based in Chicago. This acquisition was made to expand PayPal’s mobile payment business. PhiSix, on the other hand, develops technology for 3D visualization of clothing. Thus, it will help eBay offer a virtual fitting room which will provide a 3D model of clothes selected. These acquisitions should help eBay boost its top line further.

Additionally, eBay plans to launch new products which should give customers more reasons to shop at eBay. For example, it introduced an online mall for retailing products and is called “The Plaza.”

Another new product which has already become very popular among customers is a peer-to-peer payment app called Venmo. This application shows the transactions made by the user’s Facebook friends. Therefore, it is a kind of social network which shows a payment-related news feed of one’s friends and has become very popular in colleges.

The Summary

Although eBay faces stiff competition from peer Amazon, it is taking a number of initiatives to overcome it. Its strategy of acquiring new businesses along with innovating new products looks interesting. Moreover, its great first quarter numbers and the recently made acquisitions make it look even better. Moreover, both the segments, PayPal and Marketplace, are doing well with a growing customer base. Therefore, this online retailer looks like a great bet.


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