Credit: Shutterstock photoFar from being left behind in the rapidly advancing mobile-commerce market, online pioneereBay ( EBAY ) is enjoying a surge in business from being in the thick of it.
As more consumers use their smartphones and tablets to shop, eBay is often a place they look for everything from designer fashions to toys and tools.
And when they make a purchase on their mobile devices, more of those shoppers are using eBay's PayPal to do so.
PayPal mobile handled nearly $14 billion in payment volume in 2012, triple the amount from just a year earlier. Ebay expects that number to top $20 billion this year.
PayPal is quickly catching up to eBay's core Marketplaces' business, which took in a record $2 billion in revenue in the fourth quarter. Results followed various turnaround efforts to improve the site and product mix, including the addition of more designer fashions.
EBay's mobile app drew 4.3 million new users last year, generating $13 billion in merchandise volume, more than twice as much as in 2011.
"Mobile has caused all of their businesses to accelerate," said Wedbush Securities analyst Gil Luria.
Website Focus
How consumers shop makes a difference, he says. When shopping on their desktops and laptops, consumers are likely to browse many sites. But when they use their phones or tablets, they're focused on just two or three places.
"Two of the three are usually going to beAmazon ( AMZN ) and eBay," Luria said.
Amazon is the No. 1 e-commerce retailer. Unlike Amazon, eBay doesn't hold inventory. It's more of an e-commerce facilitator for third parties.
Amazon, however, has expanded into other businesses, including an online marketplace for merchants. And it may enter PayPal's turf.
PayPal is benefiting from the same mobile behavior, but for a different reason, Luria says. For shoppers using the soft keys on smart phones, PayPal's quick checkout process is easy on their thumbs.
"EBay has become a leader in mobile commerce," said Morningstar analyst R.J. Hottovy, "whether it's facilitating the actual transaction or the payment processing itself."
Mobile's role in driving growth at the eBay machine has exceeded many observers' expectations -- and management's.
"I think it's just increasing adoption of smartphones more than anything else," Hottovy said.
PayPal continues to make inroads offline, too. At year-end, 23 major retailers had signed on for PayPal's in-store point-of-sale product, representing 18,000 U.S. locations.
Among them wereHome Depot ( HD ),Footlocker ( FL ) andJamba Juice ( JMBA ).
Jamba Juice is testing an order-ahead mobile feature that lets customers order their smoothies in advance, pay with PayPal and skip the line.
A lot more locations will hop onboard PayPal's train whenDiscover Financial's (DFS) 7 million merchant locations in the U.S. start accepting PayPal in the second quarter.
"The big question is how quickly consumers will adopt PayPal," Hottovy said. "I think it's going to take some time. But I also think consumers are looking for ways to avoid credit card fees and carrying balances on credit cards. So there's some enticement to link into PayPal to diversify their payment options."
EBay's total revenue in Q4 rose 18% from the year earlier to $4.0 billion. PayPal accounted for $1.5 billion of it, up 24% from a year earlier. Marketplaces' $2 billion in revenue was up 16%.
"EBay has shed its image of being an auction site," Hottovy said, noting it's trying to lead in a number of categories such as fashion apparel, where it's done "an excellent job."
Fixed-price listings now account for nearly 70% of eBay's gross merchandise volume globally.
Founded in 1995, eBay was known as a marketplace for small businesses and individuals. But large retailers are becoming a bigger part of eBay's overall revenue mix, Hottovy says.
"Consumers think of Amazon first as a starting point for their search," he said, adding that Amazon is "more of a mass merchant." EBay's items are "a little more proprietary and harder to find."
He said eBay's interfaces have improved, making products easier to find and buy. "All these little things add up to a much more user friendly experience," he said.
After a couple of lackluster years, eBay's revenue and profits started their double-digit growth trajectory in 2011.
Profit Growth
Management expects profit growth to be about the same this year as last as it invests in the business to capture future growth opportunities.
Analysts figure both revenue and earnings will grow 16% this year. That would mean a comedown on the top line since 2012's revenue grew 21%.
Cantor Fitzgerald analysts expect "limited upside to expectations" given that the company's Marketplaces' turnaround "is virtually done."
And while the analysts wrote in a recent note that the off-line point of sale PayPal opportunity has the potential to be "a game changer," they don't think it will materially impact growth until the second half of 2014.
Management has touted emerging markets as another leg of its growth. Wedbush's Luria sees it as "a long-term opportunity."
"As the wealthier consumer class grows in these geographies, they represent potential future users of eBay," he said.
Chief Financial Officer Robert Swan put eBay's potential this way during the last conference call: "Our focus has simply been to enable commerce. In 2012 we enabled more than $175 billion of global commerce volume, up 18% (from 2011). This represents approximately 19% of the global e-commerce market but only 2% of the $10 trillion global retail market. We are only just getting started."
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.
