Online auction powerhouse eBay (EBAY: Charts, News, Offers) has loomed large in market headlines this past month. Microsoft’s (MSFT: Charts, News, Offers) mammoth acquisition of Skype boosted the company’s cash hoard while its subsidiary PayPal took search giant Google (GOOG: Charts, News, Offers) to court for allegedly stealing trade secrets to create its newly announced Google Wallet payment service. These two developing stories have the potential to significantly boost eBay’s stock as it trudges near 3-month lows.
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At the end of April, eBay reported first quarter earnings of 47 cents per share, beating estimates by a penny. Its revenues increased 16% year-over-year to $2.55 billion, edging out the analysts’ expectations of $2.48 billion. As expected, CEO John Donahoe touted PayPal’s “strong global growth” while stating that the “year is off to a strong start.” eBay currently expects its second quarter EPS to come in between 45-46 cents and its revenues to total $2.55-$2.65 billion, both of these are in line with analysts’ expectations. For the full year, the company forecasts an EPS between $1.93-$1.97, with revenue between $10.6-$10.9 billion. Currently, this matches the consensus estimate of an EPS of $1.94 and revenues of $10.48 billion.
Since announcing earnings, however, eBay stock has plunged over 10%, leading investors to wonder if the company is losing momentum as questions arise regarding the lack of new avenues of growth. Despite PayPal’s strength, the company’s flagship website is in danger of being taken out by its strongest rival, Amazon.com (AMZN: Charts, News, Offers), which has evolved from a simple online bookstore into a cloud computing multimedia superstore.
eBay, which once owned Skype before selling the majority of the company to private investors, still held a 30% interest in the company when Microsoft made its unprecedented $8.5 billion acquisition of the Internet VoIP calling service. As a result, eBay reaped a $2.4 billion windfall, with which the company is now planning to aggressively expand through acquisitions. Donahoe has stated, “We will continue to use that balance sheet to invest in organic growth, make acquisitions selectively and provide return to our shareholders with stock buybacks. The company is particularly focused on the rise of smartphones and their ability to cash checks, locate goods, compare prices and shop. PayPal’s iPhone and Android apps have the lauded ability to directly deposit paper checks through digital snapshots.
To expand this technology, eBay purchased RedLaser, the creator of a bar-code scanning tool similar to Google’s own Barcode scanner – a technology used to scan barcodes to instantly compare prices online via an Internet-enabled smartphone or tablet. RedLaser is no doubt intended to complement eBay’s purchase of Milo, which is used to help smartphone users find an item at nearby stores via GPS. This also competes directly with several of Google Android’s built-in apps, including Google Shopper, Goggles and Maps.
Donahoe has been clear about his vision for the eBay of the near future, stating, “Soon I will be able to take a photo of your shoes and find out where I can buy them and how much they cost.” The company certainly has the capital – a cash hoard of over $8 billion – to pull together the resources necessary to pull these technologies together. At the head of this new, mobile-centric eBay will be PayPal, which will overtake eBay’s flagship marketplace as the company’s largest business segment within three to five years, becoming not only a threat to Amazon and Google, but to payment processors such as Mastercard (MA: Charts, News, Offers) and Visa (V: Charts, News, Offers), which have been experimenting in online payment apps over the past year.
If eBay considers Google a threat in the mobile arena, then the filing of its lawsuit last Thursday against the search giant over the “misappropriation of trade secrets” should come as no surprise to investors. Stephanie Tilenius, who formerly worked as the vice president and general manager or three business segments of eBay and the Merchant Services of PayPal, is now the current Vice President of Commerce and Payments at Google. In addition, the current Vice President of Payments at Google, Osama Bedier, is also a former PayPal employee, where he held the titles of Social Media Strategist and Vice President of Product Development. eBay’s lawsuit alleges that Tilenius breached her resignation agreement – in which she agreed to not recruit other PayPal employees for Google – and that both Tilenius and Bedier used trade secrets acquired from their experience at PayPal to help design the newly released Google Wallet payment service.
Looking forward, eBay is focusing its growth in Eastern European and Asian e-commerce markets, which are expected to grow faster than developed markets. Currently, the company earns 40% of its revenue in the United States, 40% in Europe and 20% in Asia. Like other domestic companies reaching overseas, investors can expect the company to increase its interests in emerging markets while maintaining the status quo in its American operations. eBay currently trades at a fairly cheap 13.7 times forward earnings, and should appeal to investors who wish to capitalize upon the rise of global e-commerce.
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eBay puts pressure on Ofcom to improve mobile shopping for 4G customers
eBay gets ready for upgraded 4G networks.
Suit Alleges Google Wallet Pickpocketing PayPal
Did Google steal trade secrets from PayPal?
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Leo Sun is long-time market follower and finance writer. He regularly contributes to the Stock of the Day analysis.
Ebay needs more than app’s to take them out of their spiral downward.Fire Donahoe!
eBay, PayPal, Google, Schmoogle, whatever
The rusting old hulk eBay is presently being kept afloat by PayPal so it’s good to see these boys squabbling and threats to the clunky PayPal coming thick and fast. It’s interesting times for all we eBay “haters” (oops, I mean “watchers”). I hope that someone has remembered to bring the popcorn.
PayPal is mostly registered in various places only as a “money transmitter” (like Western Union), and PayPal actually claims that they are not a “payment processor”, and there is a minute degree of truth in that claim because it could be, nonsensically, claimed that they do no more than facilitate the transmission of money by riding on the back of the retail banks’ existing payments processing systems.
In fact, the only thing creative about PayPal has been their use of users’ email addresses as an identifier for online transactions. PayPal is otherwise no more than a blood-sucking parasite on, and in the main cannot function except via, the retail banks’ existing payments system (via their banker, GE Money Bank).
PayPal, outside of whatever will ultimately be left of the Donahoe-devastated eBay Marketplace, will undoubtedly eventually be consigned to the history books by all those same banks/Visa/Mastercard once those players get their “online” act together.
Some people may not like the “banks” but all those participating banks at least supply a professionally run payments processing system; even PayPal concurs with that assessment: except for transactions between PayPal “accounts”, they use the banks’ existing payments processing system all the time and simply could not exist without it.
Regardless, all the above comments apply equally to all of the other third-party “payments processors” that are emerging out of the woodwork and wanting to have access to your banking account. Unless they have formal arrangements with all the participating retail banks, as do the likes of Visa/MasterCard, then the result is invariably going to be as potentially problematic as is PayPal’s clunky operation for its merchants.
All anyone needs to know about the clunky PayPal:
http://forums.auctionbytes.com.....p?p=165263
Is that PayPal’s blood in the water, and are those “sharks” (oops, “banks”) I can see circling?
Enron / eBay / PayPal / Donahoe: Dead Men Walking.