EBay Can Profit On Marketplace Strength, Paypal's Growth

NEW YORK (Trefis) -- EBay's (EBAY) revenue rose around 27% in 2011 and nearly 29% in the first quarter, with most of it driven by its two primary businesses -- Marketplaces and PayPal.

While its core e-commerce business -- Marketplaces -- continues to show steady growth, PayPal has been the show stopper growing much more quickly than any of eBay's other businesses.

In its second-quarter earnings conference call Wednesday, we will be watching closely how eBay plans to extend its lead in the payments space as well as grow its e-commerce businesses. We will look out for any announcements regarding performance in the last quarter of Paypal Here, its new mobile card payment offering which enables small businesses to accept card payments.

EBay competes primarily with Google ( GOOG), Square, Intuit GoPayment and other competitors in the payments space, and Amazon.com ( AMZN) in e-commerce. (Check out our complete analysis of eBay.)

PayPal

Paypal is quickly catching up with Marketplaces as has been observed each quarter. In the first quarter PayPal total payment volume increased to $34 billion, up 24 percent year over year, with 110 million active registered accounts.

We expect an increase in the total registered accounts, payments per account as well as the average payment amount, which should lead to a significant increase in its total payment volume in the coming years.

EBay made two major announcements late in May which augur well for PayPal.

The first announcement was its partnerships with VeriFone ( PAY) and Equinox which are the No. 1 and No. 3 makers of Point-of-Service terminals. This gives PayPal access to Verifone's 5 million terminals in the U.S., one million of those being high volume points of sale.

In addition, Verifone is used by 80% of the top 200 retailers in US. While not expected to have immediate benefits, these deals show PayPal's immense future potential.

The second announcement was about 15 national retail stores agreeing to accept PayPal as a payment method. These include Abercrombie & Fitch ( ANF), Advance Auto Parts ( AAP), Barnes & Noble ( BKS), Foot Locker ( FL) and J.C. Penney ( JCP), among others.

The 15 retailers add an additional 17,000 locations for PayPal's POS. Together with Home Depot's ( HD) roughly 2,000 POS, it now has access to 19,000 retail locations in partnership with 16 retailers.

We expect eBay to shed further light on the way ahead for PayPal during the earnings call.

Marketplaces

EBay has continued to improve its marketplaces. It acquired GSI Commerce as well as Hunch in 2011, in order to increase its share of the e-commerce pie which is set to get bigger in the coming years.

GSI Commerce enables eBay to offer online shopping platforms for large brands/retailers, which could increase sales significantly. We will be watching the earnings call closely for any hints related to eBay's growth strategy in this space.

PayPal accounts around 30% while Marketplaces account for around 51% of eBay's overall value. GSI Commerce's contribution is relatively miniscule at 4.5%. We currently have a $47.50 price estimate for eBay, which stands nearly 18% above the market price.

Click here to find out how a company's products has an impact on its stock price at Trefis.

Like our charts? Embed them in your own posts using the Trefis Wordpress Plugin.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

More from Opinion

Throwback Thursday: Intel Edition

Throwback Thursday: Intel Edition

Intel's Next CEO Should Try Harder to Protect Its Flanks Against AMD and Others

Intel's Next CEO Should Try Harder to Protect Its Flanks Against AMD and Others

3 Warren Buffett Stock Picks That Could Be Perfect for Your Retirement Portfolio

3 Warren Buffett Stock Picks That Could Be Perfect for Your Retirement Portfolio

Wednesday Wrap-Up: GE and Facebook

Wednesday Wrap-Up: GE and Facebook

PayPal Strikes Again, Facebook, and AT&T -- 3 Tech Stories You Must Know

PayPal Strikes Again, Facebook, and AT&T -- 3 Tech Stories You Must Know