PayPal key impetus behind growth
PayPal’s role in eBay Inc (NASDAQ:EBAY)’s future growth cannot be overlooked. In the past quarter, sales from the PayPal unit grew 18% to $1.5 billion. And in fiscal 2012, PayPal accounted for 15% of the 1 trillion e-commerce transactions, processing transactions totaling to $145 billion.
Why do I argue that PayPal will be the key force behind growth? PayPal is latching on to the formidable mobile uptrend in the world. It is riding on the waves of smartphone and tablet growth and in the process, gaining immensely. Of the 5 million users it added in the quarter ended March, 2.8 million were added through mobile. Putting this into perspective, more than half, or at least 50%, of new PayPal users were roped in through mobile. This is of course not to mention existing users who chose to switch from PC to mobile.
During the company’s earnings, eBay Inc (NASDAQ:EBAY) chief executive John Donahoe reiterated the company’s solid stance on mobile. Donahoe made it clear that the company would place its focus on opportunities in mobile technology, citing the importance of enhancing consumer engagement anywhere regardless of location.
Is this renewed focus on mobile a good thing for eBay Inc (NASDAQ:EBAY)? I believe it is. Here is why I say this.
U.S online retail, along with online retail in other developed economies, is expected to grow moving forward. Forrester expects U.S online retail sales to hit $370 billion by 2017, up from $231 billion in 2013. This essentially translates into a 10% compound annual growth rate. However, the fashion in which people are accessing the internet, or going online if you will, is changing. PCs are becoming less and less popular as consumers tend toward tablets and smartphones. Tablet sales have been rising while PC sales have been thinning. In fact, industry specialists contend that tablet sales will outpace PC sales this year; with tablets shipments expected to reach 240 million units compared with PCs 207 million units. Smartphone sales on the other hand have for the first time outpaced feature phone sales, contributing to 51.6% of the global mobile phone sales according to IDC.
This uptrend in mobile devices will be a game changer for companies that operate online. As such, eBay Inc (NASDAQ:EBAY)’s renewed focus on mobile will be instrumental in growing its PayPal business moving forward.
Warding off competition
Amazon.com, Inc. (NASDAQ:AMZN) remains eBay’s key competitor. The company has seen a lot of capital outlay as its steps up its bid to widen its brick and mortar footprint in the country. The mushrooming of distribution warehouses throughout the country will help the company enhance delivery for its customers.
Despite Amazon.com, Inc. (NASDAQ:AMZN)’s bigger presence, eBay will still be able to operate without much sidelining. While Amazon.com, Inc. (NASDAQ:AMZN) remains a top retailer, eBay caters to small businesses looking to get a go-ahead. As such, the likeliness of these two clashing is hard. The fact that PayPal is catching on, has and will continue to address the common setback of delayed payments in auctioneering.
Google Inc (NASDAQ:GOOG)’s digital Wallet on the other hand still has a lot of catching up to do. A recent study by COMSCORE, Inc. (NASDAQ:SCOR) shows that the U.S market is greatly skewed toward PayPal. Of all the consumers surveyed, COMSCORE, Inc. (NASDAQ:SCOR) established that only 41% were aware of Google Inc (NASDAQ:GOOG)’s digital wallet. This is a small percentage when stacked against the 72% who were aware of PayPal. Worse still, 48% of those aware were active PayPal users. Google Inc (NASDAQ:GOOG) Wallet’s active users came in at a paltry 8%.
Conclusion
One key highlight in eBay Inc (NASDAQ:EBAY)’s most recent earnings report was the slashed guidance for the current quarter. The company’s forecast for the quarter was below Wall Street’s expectations, sending the share price a few percentage points down at the time of the earnings report. Since then, the stock has stagnated in the $50 to $54 neighborhood. Going by the company’s growth prospects, it would be wise to pick up shares now amid the negative sentiment. There is huge growth potential in the stock.
The article eBay’s Growth Story is Only Just Beginning originally appeared on Fool.com and is written by Lennox Yieke.
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