The shift toward online shopping continues to pick up speed: over the next 10 years, e-commerce could account for 40% of all retail sales in developed nations and 30% in emerging markets.
We feel the best way to profit from this trend is through shares of companies that process online payments and fulfill orders. Here are two such stocks we cover in our newsletter on U.S. investing, Wall Street Stock Forecaster.
VISA INC. (New York symbol V; www.visa.com) operates the world’s largest electronic payments network, through which it processes credit, debit, prepaid and commercial transactions.
Visa gets most of its revenue from fees it charges card issuers and merchants for using its network. It bases its fees on payment volume, transactions processed and other factors. The banks that issue the cards are responsible for evaluating customer creditworthiness and collecting payments, not Visa.
In its fiscal 2014 second quarter, which ended March 31, 2014, Visa’s earnings jumped 25.8%, to $1.6 billion from $1.3 billion a year earlier. Per-share earnings rose 31.3%, to $2.52 from $1.92, on fewer shares outstanding. However, if you exclude a one-time tax benefit in the latest quarter, earnings per share rose 14.6%, to $2.20.
Revenue gained 6.9%, to $3.2 billion from $3.0 billion. The company gets half of its revenue from outside the U.S. Without the negative impact of currency exchange rates, revenue gained 9%. Visa processed 15.4 billion transactions in the quarter, up 10.9% from a year earlier.
Debit cards are a fast-growing area for Visa. To take full advantage, the company has been working with banks to develop new prepaid debit cards. Unlike current cards, which can have confusing fees and conditions, Visa’s cards will charge users a flat rate.
The stock has soared 175.0% since we first recommended it at $76 in our December 2010 issue. The $1.60 dividend yields just 0.8%, mainly because the company prefers to use its excess cash flow to repurchase shares. Since 2009, it has cut the number of shares outstanding by 17%.
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Stock investing: Cash transfer triggers big tax bill for eBay, but should pay off in share buybacks
EBAY INC. (Nasdaq symbol EBAY; www.ebay.com) gets 51% of its revenue by charging users fees to sell goods on its shopping websites, including its main auction site, which it launched in September 1995. This site now has 145.1 million users.
eBay gets a further 43% of its revenue from processing online transactions, mostly through its wholly owned PayPal subsidiary. This business now has 148.4 million users. The remaining 6% of eBay’s revenue comes from its Enterprise division, which helps businesses process online orders.
The company lost $2.4 billion, or $1.82 a share, in the three months ended March 31, 2014. That’s mainly because it transferred $9.0 billion in cash from its overseas businesses to its U.S. headquarters, triggering a $3.0-billion tax bill.
However, the cash will help eBay fund its plan to buy back $3.8 billion worth of shares. It could also use the funds to make an acquisition or expand its existing businesses.
Without this charge and other unusual items, eBay earned $899 million, up 8.4% from $829 million a year earlier. Due to fewer shares outstanding, per-share earnings rose 11.1%, to $0.70 from $0.63. Revenue gained 13.7%, to $4.3 billion from $3.7 billion.
The stock is down to $50 from $60 in February 2014, partly due to concerns over rising competition from other online sellers. The stock also suffered after online intruders accessed eBay users’ personal information.
In the latest edition of Wall Street Stock Forecaster, we look at Visa’s earnings outlook in light of the company’s international growth prospects. We also examine the international competition eBay is facing and its ability to rebound from bad publicity regarding its handling of users’ personal data. We conclude with our clear buy-hold-sell advice on these two stocks.
If you’re a member of Pat’s Inner Circle and you’d like to ask a question about today’s article, please go to the question page reserved for you (be sure you’re logged in first). Click here to ask your question.
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The shift toward online shopping continues to pick up speed: over the next 10 years, e-commerce could account for 40% of all retail sales in developed nations and 30% in emerging markets.
