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Why eBay Is a Great Pick for Your Portfolio

August 07, 2014 | About:
Suravi Thacker

Suravi Thacker

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With the growing popularity of e-commerce, competition has become intense among the players in the online trading marketplace. Each player is trying a new way out to overcome competitive pressures. However, there are some prominent players who continue to lead the market with its great performance.

A typical example here is that of eBay (EBAY), which seems to be racing ahead mainly because of some key strengths. Its recently reported second quarter numbers met the Street’s estimates, despite various problems faced by the company. This led to a rise in its share price.

Key growth drivers

Driven by growth in the PayPal segment, revenue surged 13% to $4.4 billion, over last year. This was higher than the analysts’ estimate of $4.3 billion. The increase came in despite the data breach which led to a loss of 145 million customers’ personal information, such as login ID, password, phone numbers. This was expected to hamper sales since customers would become cautious about shopping at eBay.

Nonetheless, the online retailer managed to put up a great show because of its PayPal business, which makes 45% of its total revenue. PayPal registered sales growth of 20%, clocking in at $1.95 billion. The business added 4.1 million active customers to its customer base, which reached a total of 152.5 million. Even enabled commerce volume growth was 26%, as PayPal was launched in 10 new markets.

Also, eBay witnessed an increase of 6.6 million in new buyers and accounts in the mobile engine segment. Even the enterprise group reported same store sales growth of 14% with an increase of 15% in gross merchandise sales. Revenue from Marketplaces stood at $2.2 billion, as active users climbed 14% to 149 million active buyers.

Earnings too jumped to $0.69 per share from $0.63 per share in the prior year. Hence, the company did a commendable job of managing its costs and growing its top line.

Pressure from peers

However, eBay faces stiff competition from its peers such as Amazon (AMZN) in e-commerce space. Amazon is quite big in size and geographical presence. Further, it has a much diversified product portfolio, and it continues to enter into new products. For instance, Amazon recently launched a new smartphone, called Fire. This smartphone has special features such as detecting images to help in buying it at a simple touch.

Also, Alibaba’s IPO in the coming months will pose a threat to other e-commerce players. Alibaba is a Chinese player and is expanding its presence in the U.S. through its website.

Points to look forward to

However, eBay too is formulating strategies to combat competition. It plans to expand its geographical presence. It recently got into the Latin American market, which should help eBay earn more dollars.

Further, it has made some acquisitions to expand its business. It acquired AppTek for machine translation recently. This buyout was in addition to the purchase of Phisix in February this year and that of Braintree in December last year.

Final words

Therefore, eBay has proved to be a shining star with its second quarter performance. Moreover, revenue grew in all the segments of the business. Also, it repurchased shares which made investors happy. Further, its efforts to expand its business look interesting. However, a dull outlook is something which makes me doubtful about the company’s near future. Nonetheless, this online retailer is a great pick for the long run.


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