Catalysts for eBay Inc (EBAY)’s Growth
There are two dominant forces when it comes to online shopping. Of course, Amazon.com, Inc. (NASDAQ:AMZN) is the leader and is a pure player of online sales. The other one, eBay Inc (NASDAQ:EBAY), which is also online based shopping, is focused on auctioning of items and enjoys the leadership position. The company is trying to re-establish itself as a strong company after the spin-off of Paypal Holdings Inc (NASDAQ:PYPL) last year. The stock was also trading at a historically low price suggesting that uptrend is round the corner any time now. Also, the company’s price to earnings relative to the broader index and the industry average suggested that the stock has enough potential for upside rewards. Aside from these, let us also look at the other factors as catalysts for the stock.
eBay Inc (NASDAQ:EBAY) has identified its tactical priorities and the focus for the current year. Accordingly, the online auctioneer wants its site to be a vibrant marketplace with a strong, stable, and secure commerce platform to showcase engaging products, as well as, brand experiences. These three factors should provide the best choice of most relevance and powerful selling platform. The company is also keen to position its brand on mobile. The company is in the process of re-positioning itself in the marketplace, and the gains will start adding to its financial numbers in the upcoming quarters or years. Currently, the online auctioneer believes that it was going on the right path following the spin-off.
There are some positive factors in eBay Inc (NASDAQ:EBAY)’s key metrics. For instance, 80% of items sold were new thus the dependence on the auctioning items have reduced while 63% of the transaction involved free shipping, which means there could be pressure on margins. Eighty four percentof gross merchandise value of the sold items was at a fixed price indicating a better gross margin. The company has established mobile iterations, choice, and comparisons apart from improving the ability to discover items for a better experience of buyer and seller. Similarly, the seller focus is on effective tools and fair policies for driving best inventory and brings the competitive prices to its platform. As far as the C2C, the online auctioneer is betting on innovative experiences, as well as, acceleration of the sell-to-buy wheel.
Bet On StubHub
eBay Inc (NASDAQ:EBAY) needs to excel without the contributions of Paypal Holdings Inc (NASDAQ:PYPL) in a few years time from now. Therefore, the company appears to bet on StubHub as one of the growth drivers in the upcoming years. It was a place where the consumers buy and sell tickets for live entertainment apart from the theatre, music, and sports. It has already been generating enough interest following the re-acceleration of product changes in the second half of the last year, i.e. after the spin-off. The key factor was that consumers have a love for its functionality than its rival, Ticketmaster, as the people liked the way the domestic events were panned out.
The people love eBay Inc (NASDAQ:EBAY)’s StubHub because it enables the consumers to see the view of the seat while purchasing a ticket. That totally avoids the embarrassment of sitting from an uncomfortable position to watch the live events. That kind of things underwhelms the consumers and prevents them from purchasing tickets from the same platform again. Another key point was that the user could sell the ticket immediately after buying the ticket also though booking charges were there for every booking. That also enables some of the consumers to trade the ticket like the shares in the stock exchange. For instance, a consumer could buy a ticket to a live event or theater or music well in advance thinking that as the date gets narrow, the demand for the ticket will also grow commanding a premium. In such a situation, the consumer could sell the ticket. As far as the company was concerned, the more the consumers trade, the more the booking fees they earn.
eBay Inc (NASDAQ:EBAY)’s focus on StubHub and mobile classifieds are quite obvious since there is little that it could do with its marketplace platform for stalled growth. However, the company indicated that it was taking initiatives for long-term growth by re-positioning its business though near-term growth was constrained. Most recently, the management indicated that itss focus on StubHub as a primary ticket seller. That means it would continue to shoot for some exclusive deals in the next few years like the Philadelphia 76ers NBA season for the year 2016-17. Agreements like this will slowly eat into the business of its rival, Live Nation Entertainment, Inc. (NYSE:LYV).
In the fourth quarter, eBay Inc (NASDAQ:EBAY) witnessed 34% YOY growth in its StubHub revenue following the cceleration of the product changes in the second half of the last year. For the whole of the year, its revenue growth was 15.3% while gross merchandise value advanced 12.5%. The important factor here was that its double-digit growth came on the back of a 3.7% drop in the revenue despite 3.2% increase in GMV in the preceding year. The company is also planning to expand its presence in the Great Britain and Germany and by grabbing the rights to big international events.
For eBay Inc (NASDAQ:EBAY), it was important that its Classifieds Group also grow in tandem with the StubHub. It has 12 brands in 17 nations with a leadership position in ten countries. Its mobile app was ranked as the number one in eight markets. Therefore, the company was keen to make use of the strong positions to push its best in class experience to new customers. The company also enjoys a 25% share in Craigslist, which continued to enjoy the biggest traffic of the classifieds. However, the online auctioneer modified its classifieds to be more users friendly with its new mobile app Close 5 attracting six million users in the December quarter. The segment’s revenue would have advanced 15% but for the unfavorable currency impact. The mobile apps could likely wean away the users from Craiglist benefiting the company’s top line.
On the face of it, eBay Inc (NASDAQ:EBAY) looks to be struggling for revenue growth. One of the reasons for this was the currency impact since 60% of its revenue was from the International segment. However, the company is focusing on two other businesses, StubHub and the Classifieds as there are potentials to be tapped even while repositioning its market place. At the current levels, there are fewer downside risks and the valuation suggested there are potential upside rewards. The first quarter results should throw more light on StubHub.
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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