The Paradigm Shift at eBay

04/17/2013 7:45 am EST


By evolving from 'just' online auctions to become a global payments powerhouse, this company is seeing double-digit growth, writes Geoffrey Seilers of

eBay (EBAY) recently held its annual analyst day, where it provided robust guidance for its key business platforms, saying eBay's three core businesses—Marketplace, PayPal, and GSI—would process in excess of $300 billion in global commerce by 2015, up from $175 billion in 2012.

Over the past few years, eBay has essentially transformed itself from an online auction Web site into a retail, payments technology, and fulfillment company that can help retailers optimize their businesses both online and offline.

Nearer-term, management said it expects eBay's total revenue to grow to a range of $21.5 billion to $23.5 billion in 2015, compared with the $14.1 billion it reported last year, driven by ongoing innovation in its core businesses and what it said was eBay's growing strength in mobile commerce.

The company guided for annual adjusted earnings per share growth of 15% to 19% through 2015, with free cash flow exceeding $11 billion over the next three years.

The eBay Marketplace has evolved from its online auction roots to a broader business-to-consumer (B2C) experience, with a number of larger retailers beginning to embrace it as part of their e-commerce strategy.

Analyst reaction to the meeting and guidance has been bullish. Canaccord Adams analyst Michael Graham upgraded eBay to a "buy" and set a $67 target. Collectively, 30 of the 38 analysts that track eBay are recommending the stock.

Cantor Fitzgerald's Youssef Squali reiterated his "buy" rating and $64 target. KeyBanc also raised its target price for the stock to $65 from $63.

We continue to believe that eBay has some very bright long-term prospects. In a world where companies are trying to figure out how to monetize mobile, eBay is already cashing in on the mobile movement via PayPal, and its management team stressed the numerous ways mobile technology was transforming retail.

The guidance reflects a strong belief that eBay is on the leading edge of a long-term, sustainable growth path. Through innovation and acquisition, eBay is now at the cutting-edge of e-commerce technology.

These technological improvements have helped the company draw top retailers to use its site for closeout inventory, improving both its merchandise and the quality of its sellers.

PayPal, meanwhile, is a swiftly growing online payments business, but with its offline initiatives and move into the virtual wallet, its potential is even greater.

Its deals with companies like Home Depot (HD) and Discover Financial (DFS) are helping it to stake out a place at the point-of-sale kiosk, while its mobile solutions are enabling consumers to select and purchase items before they reach the traditional checkout counter. PayPal appears to have multiple growth levers it can pull.

The above-consensus guidance led to a sharp rise in the stock price following the analyst day and bodes well for the stock's performance over the long haul. We continue to rate eBay a "Buy."

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