As 2012 nears its end, a quick look at the top 25 industry
sectors as ranked by Investor's Business Daily (IBD) leads to a
startling realization. Not a single technology group features
among these 25 despite the fact that the Internet network
solutions group and a few others have put in good performances at
different points of the year.
At number 31, Retail-Internet is the highest ranked technology
group which features on the IBD lineup of 127 industry groups.
eBay Inc.
(
EBAY
) leads this 25 company group which has had a chequered run
through the year. After a mid-year decline, the group has
recovered and has gained around 35% since Mid-July.
The Internet-Solutions group which was among the leading
industry sectors in the IBD rankings at the beginning of 2012 has
now fallen behind. The group is now ranked 58 with
Akamai Technologies, Inc.
(
AKAM
) leading with the highest composite rating, followed by the
likes of
SolarWinds, Inc.
(
SWI
),
Rackspace Hosting, Inc.
(
RAX
) and
Equinix, Inc.
(
EQIX
).
Amazon.com, Inc.
(
AMZN
) is the largest member of the Retail-Internet group in terms of
market cap. The group has ended the year on a positive note,
despite the fact that it includes the likes of daily-deals
website
Groupon, Inc.
(
GRPN
) whose performance leaves much to be desired. Ranked at 56,
Computer Software-Enterprise is the lone computer software group
to feature in the top 100 IBD industry groups.
Amazon has relied heavily on the Kindle, which is primarily a
platform for its ebook and media sales, as an engine for future
growth. eBay on the other hand is increasingly being powered by
PayPal which has become its cash cow. One can also argue
that the company's growth is closely tied to the growth of
PayPal. This is clearly borne out by revenue numbers.
If we examine third quarter results, we can see that PayPal's
revenue touched $1.4 billion and its total payment volume
increased to $35.2 billion. This means that PayPal's revenue grew
24%, accounting for 41.1% of eBay's total third quarter revenue.
eBay expects to collect over $10 billion in mobile payments alone
by the end of fiscal 2012. Meanwhile, PayPal continues to command
a high merchant transaction margin of 64.8%.
PayPal is attempting to grab an even larger portion of the
payments pie, both offline and online through a mix of various
measures. It is looking to build strong direct merchant
relationships.
The
Home Depot, Inc.
(
HD
) has already begun accepting payments made through PayPal at all
its stores in the U.S. Customers can pay using their mobile
phones or use a payment card. Its partnership with
Discover Financial
Services
(
DFS
) has also given it access to 7 million retail locations.
However, the biggest component of its strategy going forward
seems to be mobile payments. It is already competing with the
likes of Square as a mobile payment tool, even at smaller retail
outlets. Using a special application and a triangular device
which is connected to a phone, even small store owners can
conduct electronic financial transactions such as credit card
payments, deposit cheques as well as enable customers to use the
PayPal debit card.
Revenue from mobile payments is expected to grow from $240
billion to $640 billion by 2015. PayPal is witnessing very
healthy growth from this segment. Mobile payments on PayPal
increased 133% on Thanksgiving, 153% on Black Friday and 196% on
Cyber Monday. Meanwhile,
Intuit
Inc.
(
INTU
) and even financial majors such as
Bank of America Corporation
(
BAC
) are emerging as major players in this space.
Square is backed by a strategic investment from
Visa
Inc.
(
V
) made in 2012. Citi Ventures and
Starbucks Corporation
(
SBUX
) are also invested in the firm and these investments will give
it access to bigger retailers. Google Checkout is the other major
threat. This offering from
Google Inc.
(
GOOG
) offers a wide range of services which includes online, mobile,
PC as well as brick and mortar payments using a mobile app
and near field communication ('NFC').
What could give eBay the edge is what is known in banking
parlance as "share of wallet". This refers to how much of a
customer's total expenditure is made using the products and
services of a particular firm. If this figure is high it
consequently increases the customer's switching cost. PayPal
already has 117 million active users. If PayPal can convince them
to conduct their mobile and online purchases through them as well
as use their Bill Me Later service then it would be more
convenient for customers to stick to PayPal rather than resort to
switching.
AKAMAI TECH (AKAM): Free Stock Analysis
Report
AMAZON.COM INC (AMZN): Free Stock Analysis
Report
BANK OF AMER CP (BAC): Free Stock Analysis
Report
DISCOVER FIN SV (DFS): Free Stock Analysis
Report
EBAY INC (EBAY): Free Stock Analysis Report
EQUINIX INC (EQIX): Free Stock Analysis
Report
GOOGLE INC-CL A (GOOG): Free Stock Analysis
Report
GROUPON INC (GRPN): Free Stock Analysis
Report
HOME DEPOT (HD): Free Stock Analysis Report
INTUIT INC (INTU): Free Stock Analysis Report
RACKSPACE HOSTG (RAX): Free Stock Analysis
Report
STARBUCKS CORP (SBUX): Free Stock Analysis
Report
SOLARWINDS INC (SWI): Free Stock Analysis
Report
VISA INC-A (V): Free Stock Analysis Report
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