Credit: Shutterstock photoSummary:
eBay is one of the largest online retailers in the world. The company's profits increased post third quarter earnings results. Despite the challenges in the all-important Marketplaces segment, a focus on buying experience, the PayPal spinoff, opportunities in the fast-growing mobile space, international expansion and a strong balance sheet remain positives. However, growing competition and execution risks overall could impact results in the following quarters. We therefore reiterate our Neutral rating on the shares.
Overview:
eBay Inc. is one of the largest online retailers in the world today. The company started humbly with the purpose of bringing together small sellers and buyers on an online auctioning platform and floated its IPO in 1998. eBay has undergone a sea change since then, with the number of buyers and sellers increasing manifold.
Following the disposal of the communications business and the acquisition of GSI, revenues are reported under three segments: Marketplaces and Payments.
Marketplaces is the biggest segment, displaying over 550 million listings and 128 million active users all over the world in 2013. The segment, which generated 52% of 2013 revenue, comprises a number of ecommerce portals, where the company earns listing fees and commission on completed sales.
The company sells under both the fixed-price and auction-style formats. Under the auction-style system, the seller fixes the minimum price, but sells to the highest bidder. Fixed-price, as the name implies offers no room for negotiation. Total gross merchandise volume (GMV) in 2013 was $76.5 billion, more than two-thirds of which was sold in the fixed-price format. Total GMV increased 11% over 2012 levels, although non-vehicles GMV increased 13%.
The Payments segment includes the company's PayPal (available in 193 markets) Bill Me Later (available in the U.S.) and Zong (China) services, together accounting for around 41% of eBay's total revenue in 2013. PayPal is an online payment system that facilitates the payment or receipt of cash from online transactions. Bill Me Later is a business the company acquired in November 2008 to offer credit to customers with the minimum of fuss. PayPal revenues are generated in a number of ways transaction fees when a Business or Premier account receives a payment, a foreign exchange fee when the account holder converts the currency in the account, Pro direct card processing fees, gateway processing services, fees for international sales, interest on customer balances and other financial products. Total Payments Volume (TPV) of $179.7 billion was up 24%.
The Enterprise segment was formed following eBay's acquisition of GSI Commerce in 2011 with the intention of adding fulfillment services. The segment, which contributed 7% of revenue in 2013 now comprises three lines of business: Commerce Technologies, Omnichannel Operations and Marketing Solutions. These three businesses provide a technology platform, fulfillment services and marketing tools, respectively to help both traditional and online retailers sell goods online.
eBay generates revenue through transactions and marketing services, so revenues in each segment include both elements.
Since eBay is an online marketplace, almost any retailer whether traditional, online or in the form of shopping networks and whether consumer to consumer, business-to-business, or business-to-consumer may be considered its competition. Of course, those that partner with it are no longer its competitors. This could be the reason the company doesn't mention any specific competition. Amazon, which also has an online marketplace, may be considered its closest competition.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
