eBay Inc (EBAY) Returning To The Basics As Strictly A Seller Of Goods


  • eBay Inc (NASDAQ:EBAY) active buyers rose to 157.3 million in 1Q
  • Revenue in Marketplace unit decline 4%, but recovery is possible
  • eBay lowers 2015 estimate on currency translation headwinds concerns
  • Standalone PayPal will be able to do business with eBay rivals like Amazon (AMZN)

eBay Inc (NASDAQ:EBAY) is breaking up in what will result in the company’s marketplace and PayPal going different directions. In many ways, eBay is going back to its origin as a marketplace provider. There are both opportunities and challenges as eBay embarks on the road to split itself up, but the challenges are expected to be short-lived as the management has set several reforms in motion to ensure that marketplace stabilizes and grows post the split.

At the end of 1Q2015, eBay boasted more than 157 million active users and the numbers are expected to grow as the company introduces more products to woo merchants and buyers to its marketplace platform. The separation of PayPal will result in some revenue loss for eBay because the payments division has been the growth driver in the company in recent times. However, the spinoff of PayPal will also enable eBay to streamline its structure and also set PayPal free to do business with rivals like Amazon.com, Inc. (NASDAQ:AMZN), and operate in a manner that maximizes its own potential.

1

eBay reforms

eBay Inc (NASDAQ:EBAY) is seeking to deliver more value to its sellers, perhaps also hoping to end recent vendor exits from the platform to rival marketplace Amazon. Towards ensuring that its platform improves to what vendors desire it to be, eBay is implementing cataloged data across all listings. The bottom-line is that eBay will be able to make inventory easier to find on and off eBay.com.

In another move, eBay Inc (NASDAQ:EBAY) is making efforts to draw more traffic to its platform through introduction of new products and improvement of existing ones like the update to its iPad app.

Subscriber confidence is something that currently concerns every e-commerce provider. eBay is investing in building trust among its vendors and buyers especially by ensuring their protection. The company acquired CyActive, a cyber-security provider, as part of the efforts to bolster the security of its marketplace so as to win user confidence.

To attract more vendors to its platform, eBay is also planning to tweak its policies so that they are more friendly and predictable.

The company is also making it possible to merchants have wider access to useful data that can enable them to bolster sales on the platform. In the same vein, eBay is making listing and pricing simpler.

eBay is in the race to make itself the go-to-place for vendors and buyers. The company has been able to release a number of new products hoped at raising the profile of its marketplace. Recently, the company launched live auctions and also updated its apps for iPad, with all being part of the broader effort to raise the profile of eBay is a reliable online auction platform.

Weakness areas

As much as eBay Inc (NASDAQ:EBAY) has put its best foot forward to ensure that it can woo and retain merchants and buyers, the company still has many worries to chew over, although most of these hiccups could be short-lived.

Marketplace: Among the issues that eBay has to battle is the slow pace of turnaround at its marketplace. The company has been cutting jobs and making another tweaks with the hope of lowering costs and spurring growth. However, things haven’t been moving with the desired speed in the Marketplace division and there have been heightened concerns as the company move to separate its payment arm PayPal, which have been its growth engine.

In the latest quarter, Marketplace revenue declined 4% to $2.07 billion at a time when revenue in the payment unit that includes PayPal rose 14% to $2.11 billion. eBay needs to do more to ensure that things do not continue in a downward spiral in the Marketplace after PayPal is separated.

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Global market: eBay’s performance overseas hasn’t been strong as expected, especially with issues of economic slowdown in Europe. The company must fix things abroad to bolster overall performance in its Marketplace now that PayPal is about to start a new life on its own.

Revenue and margins: The slow turnaround in the Marketplace essentially means that revenue and margins are not where they are supposed to be. Investors are hoping a more focused eBay, without Paypal, will become more streamlined and focus its growth efforts.

Strategic acquisitions

In addition to growing organically, eBay Inc (NASDAQ:EBAY) also looks to strategic acquisitions for growth. The company has made a number of acquisitions in recent times with an aim of helping it strengthen its various divisions. eBay tapped cyber security startup, CyActive to enable it bolster the security of its platform by being able to predict, detect and prevent malicious software. The acquisition as already mentioned goes a long way to help eBay build trust in its Marketplace.

2015 outlook

eBay Inc (NASDAQ:EBAY) withdraw its earlier 2015 revenue outlook and replaced it with a little bit downbeat estimate citing foreign exchange headwind. The company expects 2015 revenue in the band of $18.35-$18.85 billion. It previously estimated revenue in the range of $18.6-$19.1 billion. However, the company retained its earlier EPS guidance of $3.05-$3.15.

1Q2015 highlight

eBay Inc (NASDAQ:EBAY) blew up 1Q2015 expectations by posting adjusted EPS of $0.77 on revenue of $4.45 billion. Both revenue and EPS increased from the same quarter a year earlier. Analysts on the average expected EPS of $0.70 on revenue of $4.42 billion.

Conclusion

eBay Inc (NASDAQ:EBAY)’s valuation looks attractive with the company trading at 11 time forward EBITDA. As such headcount reduction and other cost measures seems slow at to bringing the desired results in the Marketplace division, the long-term is likely to be stronger as a more streamlined company emerges.

The spinoff of PayPal is based on the premise that the payment service will be able to integrate with other commerce platforms and better pursue its own future without having to appease eBay. That means PayPal being able to do business with rivals of eBay that have currently shied away from the service.

There is no worry about what would happen with PayPal in the short-term after it gets separated from eBay. A plan has been developed to ensure that eBay assures PayPal of predictable revenue for five years.


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.

Neha Gupta

Neha Gupta has been in the financial space for over six years now. Gupta earned her MBA degree from Symbiosis Centre of Distance Learning in 2009 and her passion for finance led her to pursue Chartered Financial Analyst (CFA) course. She has successfully completed Level II of her CFA. She is a veteran in article writing, which is depicted in her numerous pieces published on SeekingAlpha, Nextiphonenews, InsiderMonkey, MarketWatch, and Techinsider. Her crisp and eloquent writing finds its best place in Researchcows, where emphasis is given on developing rich content for various websites, products, business plans, trainings, and book writing.

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