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Brace for eBay's Revenue Explosion

Perhaps that's one of the big reasons that UBS analyst Eric Sheridan initiated coverage on eBay on April 1 (no fooling) with a "buy" recommendation. Interestingly, Sheridan on the same day initiated coverage on AMZN, about which he wrote: "In the near to medium term, we expect that Amazon will remain in heavy investment mode as it invests for the revenue flywheel opportunities that will allow it to maintain 20% revenue growth for the next half decade. As a result, current valuation of the stock and near-term headwinds on operating costs keep us on the sidelines at this time."

Yet when it came to his recommendation on eBay, one of Sheridan's central points was focused on the company's PayPal division. "PayPal is innovating and disrupting the ecosystem of convenience paying and the future of money," he said.

Another firm, Compass Point, recently reiterated its rating of "neutral" for eBay, and yet it optimistically changed its price target from $50 to $66. So far, the median one-year price target from the analyst community is $62.

Devin Wenig, eBay's marketplace president, told analysts on March 28 that the company may end 2015 with at least 200 million active participants (aka, "users"). At the end of 2012, eBay had 112 million active users.

PayPal President David Marcus said emphatically during the same analyst presentation that PayPal would double the amount of payments it processed by 2015 from the $145 billion it processed in 2012. No wonder the analyst community is buzzing with excitement for eBay's future.

Looking at a one-year chart, we can see some of the catalysts for the stock's upward mobility and resiliency. Yet you can also see the "cross of contradiction" that shows the ascent of eBay's quarterly revenue per share growth and the descent of year-over-year diluted quarterly EPS growth. EBAY Chart EBAY data by YCharts

Apparently, the market is expecting the EPS growth numbers to show a marked improvement when eBay next reports its earnings April 18. The consensus estimate for EPS from the analysts who follow eBay is for an increase of nearly 13% to 62 cents per share.

The same group of analysts is looking for average estimated sales growth of close to 15% with an average estimated quarterly revenue increase to approximately $3.76 billion. As eBay continues its multi-year restructuring aimed at partnering with more retailers, revenue is likely to skyrocket.

CEO Donahue has laid out an aggressive three-year plan for analysts and for investors that would drive sales growth to $300 billion a year by 2015. That's up sharply from the $175 billion in sales last year, which includes all divisions of eBay, including PayPal. Last year PayPal alone increased its revenue by 26% from the previous year to over $5.6 billion.

You'd be well-served to watch and listen to what the leadership has to say about all of its plans to grow like the dickens over the next few years, and the details of that are found at its Web site's news and investor relations pages.

eBay is currently trading for less than 18 times forward (one-year) earnings. In contrast, AMZN is trading for almost 74 times forward earnings. No wonder eBay is looking better and better to both analysts and investors. The markets may be overdue for a correction, so an attractive entry point may appear soon.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.
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