Don’t call it a comeback — eBay (NASDAQ:EBAY) has been here for years. But the online auctioneer and e-tailer that has been oscillating all year is on the uptick again, and this time, it could stick.
Raymond James & Associates analyst Aaron Kessler’s upgrade of eBay to strong buy gave EBAY shares a 4% bump Monday and were hanging onto those gains Tuesday. Kessler gave eBay a 12-month price target of $39, which would be a hefty 25% above current valuations. Though considering eBay stock is hovering below its resistance point price of $31.18, and shares have fluctuated between $29 and $33 for months now, it’s been hard for anyone to get a bead on where eBay is heading.
However, Kessler’s optimism in eBay is the promise inherent in the company’s shift toward a new business model. The online auction site is slowly transforming itself into a more traditional Web retailer. That transformation could very well make the company a contender in the regular online retail market among leaders like Amazon (NASDAQ:AMZN).
EBay has made a series of changes to its auction business over the past year to make it into a simpler online shopping source. Changes have ranged from the incredibly simple — adding a shopping cart function for buyers — to more subtle, deep changes like reinstating free “Buy It Now” listings for the independent sellers using the site. (This means that customers can buy products for a set price.) On the whole, these changes have made for a quicker selling environment on eBay.
The results of those changes are reflected in the company’s strong earnings. Total revenue rose to $3 billion, up 32% year-over-year, during the third quarter of 2011. Non-GAAP adjusted income came to $628.2 million, or 48 cents per share. Income would have been even greater, but eBay still is feeling the effects of its spending spree from earlier this year. At the time it reported those earnings, eBay’s expectations for the full fiscal year were around $11.6 billion, with earnings per share around $2.45, right in line with analyst expectations. That would signify impressive growth over fiscal 2010, when eBay turned in $9.2 billion in revenue with $2.3 billion in profits. Growth that’s even more impressive, again, considering eBay has spent so heavily on new acquisitions this year.
All signs point to eBay meeting those expectations for the year, thanks to strong holiday sales. ChannelAdvisor, a company that helps merchants sell goods through sites like eBay and Amazon, reported that same-store sales on eBay were up 18% YOY in November, and they grew 10% on Cyber Monday.
Where does this growth place eBay in the pantheon of online retailers? It isn’t near the head of the pack with Amazon. EBay’s transaction service Paypal might outperform the Amazon Payments service, but Amazon’s quarterly income (around $10 billion) nearly matches eBay’s yearly take. Unless eBay dramatically restructures how it generates revenue from its core business, it simply can’t compete in raw financial terms. However, its current rate of growth proves that a shift away from the slower-moving auction model and to an Amazon-like retail model has eBay on the right track.
As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello and become a fan of InvestorPlace on Facebook.
