As the post-Christmas shopping season opens, we look at one of the most interesting growth stocks in the retail industry. This stock began by allowing shoppers to buy and sell items from the comfort of their home computers, but it has since aggressively added to the array of online transactions it handles.
EBAY INC. (Nasdaq symbol EBAY; www.ebay.com) operates the world’s largest online auction website, with over 99 million users in 39 countries. The company charges users fees to list and sell their goods through its websites.
The company also operates several other websites, including StubHub (live event ticket sales), Shopping.com (comparison shopping) and Rent.com (apartment and house rentals).
In all, these websites account for 55% of eBay’s overall revenue. The company gets a further 35% of its revenue by processing online financial transactions, mostly through its PayPal subsidiary.
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Growth stocks: eBay earnings jumped even without Skype
The remaining 10% of this growth stock’s revenue comes from GSI Commerce Inc., which eBay bought for $2.4 billion in June 2011. GSI, which has over 500 business clients, sells services that help its customers process orders from their websites and increase their online sales.
In 2009, eBay sold 70% of Skype, which lets users make free voice and video calls over the Internet. eBay received $2.0 billion for this interest, and received an additional $2.3 billion for its remaining 30% stake when software giant Microsoft Corp. (Nasdaq symbol MSFT) completed its purchase of Skype in October 2011. Even without Skype’s full contribution, eBay’s earnings jumped 35.3% in 2010, to $1.8 billion, or $1.36 a share.
eBay is investing heavily in technology that makes it easier for users of smartphones, tablet computers and other mobile devices to access its websites. These investments will also help PayPal securely process payments from mobile devices.
The stock trades at 14.3 times the $2.10 a share that eBay will probably earn in 2011 and 13.3 times the company’s likely 2012 earnings of $2.25 a share. These are low multiples in light of the company’s large share of the fast-growing e-commerce market.
In the latest edition of Wall Street Stock Forecaster, we assess eBay’s chances of continued success in a fiercely competitive and rapidly changing industry and its plans to continue raising its spending on technology and buying other companies. We conclude with our clear buy-hold-sell advice.
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