Novice Investing - Listing eBay's Business

Date: Tuesday 07th 2008f October 2008 01:54:19 AM

Listing eBay's Business - 12/31/2006

By: Novice Investing Staff

eBay Inc. (EBAY) is one of the transforming force in the ecommerce area today. eBay opened its door in 1995 with its main auction business through www.ebay.com. Now, it owns many dynamically exciting business such as paypal.com, skype.com, shopping.com and rent.com. Want to know what else does eBay do? We will dig deeper into eBay's 2005 annual report to find out.

On the early page of its annual report, eBay states its mission, which is to pioneer new communities around the world built on commerce, sustained by trust and inspired by opportunity. eBay divides its business into three primary segments: 1) eBay Marketplaces, 2) Payments, 3) Communications. eBay Marketplaces provide platform to enable online commerce in a variety of formats. This includes eBay.com, Rent.com, Shopping.com, Kijiji, mobile.de and Marketplaats.nl. Payment business includes Paypal business which enables individuals and businesses to securely, easily, quickly send and receive payment online. Communications business consists of Skype which provides VOIP calls between Skype users and a low cost connectivity to traditional fixed-line and mobile telephones.

eBay engaged in a variety of acquisitions during 2005. It acquired Rent.com on February 2005, which gives the company into the the foothold of online apartment rental markets. During the second quarter of 2005, eBay acquired three international classified websites, which will create a more efficient a more efficient place for consumer to come together online. On August 2005, eBay acquired Shopping.com, a premier online comparison shopping resource. On October 2005, eBay acquired Skype which provides VOIP calls to any internet users around the world. Finally, in November 2005, eBay acquired Verisign's payment gateway business which is used to provide merchants to authorize, process and manage online payments.

eBay's largest revenue generator is still the company's eBay marketplaces. It believes that success is dependent upon its community base to come together online. As of 31st December 2005, eBay's marketplaces have 72 million active users, compared to 56 million at the end of year 2004. Active user is defined as users who bid on, bought, or listed an item during the prior 12 months period.

To enhance its community vibrance, eBay seeks to give buyers 1) selection, 2) value, 3) convenience, 4) entertainment. For sellers, eBay will provide them with 1) access to broad markets, 2) efficient marketing and distribution costs, 3) the ability to maximize prices, 4) opportunity to increase sales. This is a classic marketing 101, which basically means that you have to understand what your customers, instead of what service you can provide.

eBay's Payment platform, Paypal, enables individuals or businesses with email address to securely send and receive payments online. As of December 31st 2005, Paypal had 96 million registered accounts, comprising of 19 million business accounts and 77 million personal accounts. Again, eBay annual report brilliantly tell readers what Paypal can benefit its users. Several things to choose Paypal for conducting online payment are:

Enables buyers to store their sensitive financial information online and pay merchants without sharing this information with them. This is a truly attractive proposition for those consumers that are concerned about their privacies. When using paypal, you don't have to disclose or remember your credit card number to each merchants. Instead, all you have to do is remembering your registered email address and log into paypal using that email address.
Cheaper online processing cost for merchant. This is probably because Paypal does not have the offline reach of both Visa and MasterCard. Personally, we too will choose Visa/ MasterCard over Paypal if it costs the same to process an online payment.
Easy set up for merchants. Merchants can begin accepting credit card payments in a few minutes by using Paypal. They will be instantly approved for a Paypal account and no personal guarantee, hardware and other types of applications are needed. This encourages small business or startup to embrace Paypal as their online payment system.

eBay realizes that it is crucial to accelerate the adoption of Paypal into eBay's marketplaces and other independent sites. While Paypal penetration is high at eBay.com with $ 21.9 Billion of gross merchandise volume. In the offline world, both Visa and MasterCard are raking in big money doing what Paypal is doing online. There are five ways Paypal earns money; 1) Transaction fee when a business/premier account receives payment, 2) Foreign exchange fee when a user converts a balance from one currency to another, 3) User withdraws money from non-US banks, 4) interest payment on customers' balance and 5) other financial products such as Paypal debit card and credit card.

eBay entered into the communication business when it acquired Skype on October 2005. Skype offers high quality voice communication to anyone with internet connection anywhere in the world. By downloading Skype software (for free), users can call other Skype users with means of VOIP. While it costs nothing for users, Skype will enhance users interaction for eBay's marketplaces and prompt a more active user base. This in turn will generate additional revenue for eBay's others business (marketplaces and payment). For Skype users calling home and mobile phone, the service is not free but relatively cheaper than other means of voice communications.

This is such a long article for merely describing eBay's three business segments. However, it is worth it. We like eBay's annual report in the sense that the company gives out meaningful information regarding its business segments for potential investors. We appreciate the depth of eBay's business more as we read its annual report. Valuation wise, eBay is already valued at $ 42 Billion ($ 30.00 per share), which can be considered a mature company for some. However, eBay's business is far from mature. Analysts still expect it to produce earning growth of 29% annually for the next five years. eBay has a positive net cash of $ 3.2 Billion on its balance sheet as of late and with earning per share expected to be $ 1.02 for all of 2006, we are not compelled to buy eBay as an investment at this point.

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding eBay Inc. (EBAY) or any other securities.

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