eBay shops for marketplace volume

Can the online auctioneer take down rival Amazon?

a woman

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By focusing on global expansion, mobile applications and local commerce as sources of growth, online trading community giant eBay (NASDAQ: EBAY) is aiming to handle US$110 billion of sales volume and a Gross Merchandise Volume (GMV) of US$101 billion by 2015, in a bid to compete with rival Amazon.com (NASDAQ: AMZN).

For a number of years, eBay struggled to coexist beside Amazon, which became the more dominant online marketplace, seeing eBay shares plummet roughly 83% to US$10 between 2005-09.

Since that time however, chief executive John Donahoe has implemented a number of changes, seeing the company transform from a ‘muddled auctions website’ to a market where users could easily purchase items at fixed prices and in a more convenient way through mobile application.

Promising “at least” market rates of growth, Donahoe insists that the company’s core marketplace has been fixed. Despite the impressive resurgence of the online marketplace business since 2009 however, Donahoe’s work is not yet complete.

eBay has estimated that, by the year 2015, 25% of the website’s users will reside from the BRIC countries – Brazil, Russia, India and China. Recognising this potential, eBay aims to increase sales by four times their current levels in those nations in that time. The company will push the use of mobile applications and PayPal as a payment method to increase consumer convenience in order to achieve this goal.

Whilst eBay’s 2012 revenue amounted to US$14 billion and its EPS was US $2.36, expectations on Wall Street are that the company will achieve US$21.16 billion in revenue and an EPS of US$3.98 by 2015.

The dominance of companies like eBay and Amazon.com have forced brick and mortar companies such as Myer Holdings Limited (ASX: MYR), JB Hi-Fi Limited (ASX: JBH), and Harvey Norman Holdings (ASX: HVN) to create online stores, to compete with pricing and convenience for consumers.

Foolish takeaway

eBay’s forecast has come at the same time as Amazon’s announcement that it will purchase book recommendations website Goodreads. Whilst eBay has certainly solidified itself as one of the largest and most popular online global marketplaces, the Australian Financial Review states that concern remains amongst analysts and investors that the company’s growth may struggle to keep up with the overall expansion of the online retail sector.

Despite being a very good business with a strong management team, investors would be wise to monitor eBay’s overall market share and ability to continue delivering on its estimates.

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