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eBay Eyes China’s E-Buyers

Posted on Monday, Apr 23rd 2012

According to Gartner research, the number of consumers who use mobile devices for payments is estimated to have grown 38% in 2011 to more than 141 million users. The volume of transactions over mobile devices is estimated at $86.1 billion, compared with $48.9 billion reported in 2010. Gartner believes that retail shoppers will drive the adoption of mobile payment services. Online marketplace eBay is focusing on this segment to help ensure growth in the coming quarters.

eBay’s Financials
Online marketplace eBay’s (NASDAQ: EBAY) Q1 revenues grew 29% over the year to $3.3 billion, ahead of the Street’s expectations of $3.15 billion. EPS grew 18% over the year to $0.55 compared with the market’s projected earnings of $0.52 per share.

Revenue growth was driven by PayPal, which saw revenues rise 32% over the year to $1.3 billion. Marketplace revenues grew 11% over the year as the company added more than two million active users during the quarter, the biggest addition in more than three years. Total payment volume of $34 billion grew 24% over the year.

For the current quarter, eBay forecast revenues of $3.25 billion-$3.35 billion with EPS of $0.53-$0.55. The Street was projecting revenues of $3.36 billion for the current quarter with earnings of $0.55 per share.  eBay expects to end the year with revenues of $13.8 billion-$14.1 billion with EPS of $2.30-$2.35 compared with market’s projected revenues of $13.85 billion and EPS of $2.30.

eBay’s Mobile Focus
eBay’s continued to develop mobile products during the quarter. As part of the new payment offerings, eBay rolled out their mobile payment capabilities to more than 2,000 Home Depot stores. eBay-registered users can now pay at Home Depot stores using their mobile phones and a secure PIN. They also launched PayPal Here, a small business–oriented service that is essentially a credit card reader that can be attached to a mobile phone and uses the phone’s camera to process credit cards and checks. The service has gotten more than 200,000 registered merchants since its launch in March 2012.

PayPal Here is in direct competition with the pocket-size card reader launched by San Francisco–based Square. As of October 2011, Square had more than 800,000 registered users for their device. Recent news reports estimate Square to be processing more than $4 billion in annual transactions, helping them generate $122 million in revenues. Surely, eBay should be looking at acquiring Square. But according to market reports, Square is currently working on another funding round which will peg their valuation at over $4 billion. It will be a big price for eBay to pay, considering that they ended last quarter with a cash and equivalents balance of $4.16 billion.

eBay’s Modifies Asia Strategy
eBay is also expanding their international presence and recently announced a revamped strategy for the Asian markets. For the Indian market, eBay is trying to steer consumers to high-margin products such as clothes and shoes instead of the low-margin products of electronic gadgets and books that are a preferred category in that country.

They are working to obtain a domestic payment license from the Chinese government. When licensed, PayPal would be able to offer their payment services in China and compete with AliPay. According to the Boston Consulting Group, with 145 million buyers, China comes in second among online shoppers compared with 175 million online shoppers in the U.S. The researcher estimates that the number of e-buyers in China will grew to 329 million by 2015, making it a high-growth market for eBay.

eBay Acquires Hunch
To help improve their site customization features, at the end of 2011, eBay acquired Hunch. Hunch is an online platform that offers recommendations for users based on their patented prediction technology. eBay plans to integrate Hunch’s tools into their own website to help improve the customer experience on their website.

eBay’s stock is trading at $40.29 with a market capitalization of $51.89 billion. It touched a 52-week high of $38.18 in March 2012.

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