Time to buy my favorite financial--eBAY

04/22/2013 5:09 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

I’m going to use the big post-earnings report drop to pick up shares of my favorite financial stock, eBay (EBAY). The stock fell  5.5% on the day after it announced earnings that beat Wall Street projections by a penny. But the company then guided second quarter and 2013 revenue below consensus expectations.

The lower guidance doesn’t bother me much. EBay’s revenue from its online marketplace and from its PayPal transaction service is sensitive to economic growth. In lowering its guidance the company pointed to the slowdown in the U.K. and EuroZone economies. That seems like a reasonable explanation, especially since the new revenue guidance is only a drop from the Wall Street consensus of $3.96 billion in second quarter to $3.8 billion to $3.9 billion.

What attracts me to the stock—and what makes eBay a financial stock--is the growth in the PayPal transaction service and eBay’s ability to grow PayPal on mobile platforms. As recent results from Yahoo (YHOO) and Google (GOOG) show, the transition to a mobile-centric world from the older desktop model isn’t easy. PayPal seems to have a real chance to be one of the companies to actually profit from the shift.

PayPal processed $145 billion transactions in 2012—that’s about 15% of the total $1 trillion in electronic commerce. (Total net payment volume grew by 21% in the first quarter.) But PayPal’s goal isn’t just to gain a bigger share of that growing stream of electronic commerce, but also to build a platform for transactions in the larger $1 trillion retail transaction market. With its 128 million users—up 5 million in the first quarter of 2013--and its reputation for safety and security I think PayPal has the potential to capture a big chunk of the next big market for financial transactions—those conducted over smartphones. The company has forecast annual revenue growth at PayPal of better than 20% a year.

None of this would matter much if eBay’s marketplace, the company’s original business, were still foundering. But eBay has turned that around and is in the process of building it from a bidding site for stuff from the attic into a competitor to Amazon.com. Competing with Amazon is a huge challenge, obviously, but eBay does have the advantage that many retailers would like to do their electronic business on a site that doesn’t compete with them. What eBay calls its marketplace business saw revenue climb 13% in the quarter and the addition of 3.9 million active users, a 13% increase. Gross merchandise volume, excluding vehicles, grew by 13% to $18 billion.

I’m adding shares of eBay to Jubak’s Picks today http://jubakpicks.com/ I’d calculate a one-year target price of $65 a share for eBay. The shares closed at $51.63 on April 22.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , I liquidated all my individual stock holdings and put the money into the fund. The fund did own positions in eBay as of the end of December. For a full list of the stocks in the fund as of the end of December see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/
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