Far from being left behind in the rapidly advancing
mobile-commerce market, online pioneereBay (
) is enjoying a surge in business from being in the thick of
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
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.
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 (
) 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
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
"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 (
) andJamba Juice (
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
"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
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.
Management expects profit growth to be about the same this
year as last as it invests in the business to capture future
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