Last year, eBay invested $500 million in Flipkart to acquire 5.4% stake in Flipkart by vending its Indian division.
eBay had licensed Flipkart to use its brand name. The company now intends to terminate the contract that was valued at $1.1 billion.
The latest decision comes following Walmart's announcement of acquiring a majority stake in Flipkart.
eBay India aims to start cross-border trade in India via its online platform which will benefit both Indian sellers and buyers. Indian sellers will be able to sell their products to foreign customers, thus providing a global market to these merchants. Also, Indian customers will be able to purchase products of their choice from foreign merchants.
We believe the latest move will boost eBay's customer and merchant base, given the growing e-commerce market. This will benefit the top-line growth of the company.
Coming to the price performance, shares of eBay have returned 13% over a year, underperforming the industry 's rally of 48.6%.
India Holds Promise
Per the latest report of India Brand Equity Foundation, Indian e-commerce market is expected to reach $200 billion by 2026 from $38.5 billion in 2017. Moreover, the market is anticipated to exceed $50 billion in 2018.
The increasing use of smartphones and internet, courtesy of the ongoing digitalization in India, is likely to boost the internet user base in the country. Internet users are expected to reach 829 million by 2021, up from 373 million in 2016.
Further, online shopping in the country is expected to reach $135.8 billion in 2018, surging 31% on a year-over-year basis.
eBay entered the Indian market in 2004 with the acquisition of Bazee.com. In 2013, the company acquired a majority stake in Snapdeal which it sold early this year.
We note that eBay is poised to reap benefits from the growing opportunities in the e-commerce space in India.
eBay Inc. Revenue (TTM)
Amazon's e-commerce platform in India has been a big success and is expected to continue to bolster its business in the country. Additionally, Alibaba's investment in Paytm Mall has strengthened its position in India.
Hence, eBay India is likely to strengthen the market share of the company in the country. This will also drive its business growth.
However, intensifying competition from Amazon and Flipkart along with their dominant position in the market remains a concern.
Currently, eBay carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 (Strong Buy) Rank stocks here.
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