Positives Overshadow Key Concerns for eBay Inc (EBAY)
eBay Inc (NASDAQ:EBAY) is an online marketplace company, with a web payment division that has been earmarked for spinoff. One of the key concerns in the company currently is mounting competition from rivals Amazon.com, Inc. (NASDAQ:AMZN) and Google Inc (NASDAQ:GOOGL). However, a streamlined eBay will benefit from the rapidly growing smartphone penetration and vibrant e-commerce in Europe.
eBay Inc (NASDAQ:EBAY) revised its fourth quarter 2014 earnings to $1.02 billion, representing $0.82 a share. It earlier reported earnings of $0.75 a share for the quarter. eBay revenue was up 8.6%, to $4.92 billion.
For the current year, the auction marketplace provider expects sales in the range of $18.6-$19.1 billion. However, the projection is $20 million short of the consensus estimate.
Looking at eBay stock analysis so far this year, eBay stock is up more than 3.8%.
At the January earnings conference, eBay’s CEO, John Donahoe, told investors that they expect 2015 to be yet another challenging year for the company. Sales are expected to remain soft in the year before there can be stability in the future.
- eBay Inc (NASDAQ:EBAY) faces marketplace competition from Amazon, which has been growing rapidly in the recent times.
- Google’s sponsored search results are also eating into eBay’s advertising revenue. The tweak in Google’s search algorithms is also expected to impact eBay revenue, because shoppers are getting pushed away to rival sites.
Rapidly growing e-commerce in Europe
This year, more European shoppers are expected to buy additional items on the Internet and spend more money in online purchases compared to 2014. The recession in Europe is pushing many shoppers in the region to buy items online, because of cost benefit. The European e-commerce market is expected to increase 19% in 2015, compared to 18% last year. eBay Inc (NASDAQ:EBAY) is best-placed to benefit from the robust, European e-commerce market, especially given that customer base doesn’t entirely overlap with that of fast-growing rival, Amazon.
The rapid growth of mobile e-commerce presents an opportunity for eBay to generate more revenue, given the company already has a lead in mobile and local Internet shopping. According to Ericsson the total global mobile connections will hit 9.2 billion in 2019. At the same time, U.S. smartphone penetration is expected to be more than 80% at the close of 2015. Increase in mobile traffic is expected to increase sales and advertising revenue for eBay.
eBay Inc (NASDAQ:EBAY) announced plans to eliminate about 2,400 positions, which is nearly 7% of its workforce. The job-cut is mostly expected to happen in the Marketplace segment and should lead to reduction in overhead expenses and other operating costs. eBay stated that eliminating the 2,400 positions will save the company $300 million this year alone, with room for more savings in future.
The plans to spin off PayPal and separate the Enterprise unit are expected to unlock value for the shareholders. Spinning off PayPal will enable the online payment provider to win business from companies that could not do business with it when it was part of eBay’s Empire. PayPal contributed revenue of $2.2 billion in the last quarter.
Separating the Enterprise unit will allow eBay Inc (NASDAQ:EBAY) to return to its roots, where it did not operate warehouses or hold inventory. The Enterprise division could be spun off into a standalone company or sold. The unit caters to both offline and online retailers by providing them with software, warehouses and logistics solutions. The Enterprise business was created from a combination of several acquisitions that include GSI Commerce and Magento.
There are certainly a number of challenges that eBay Inc (NASDAQ:EBAY) will have to deal with in the short-term, as the management has already pointed out. However, dealing with these challenges will enable the company to lay down a solid foundation for long-term improvement in performance. Once eBay completes the separation of PayPal and its Enterprise division, the company will be able to eliminate activist pressure. That will enable the streamlined company to focus on core operations and investment in high-growth areas, for better returns and attractive uptick in eBay stock prices.
Disclaimer: The opinions and data expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisory capacity, nor is this an investment research report. The author’s opinions expressed herein address only select aspects of potential investment in securities of the company or companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice.
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