eBay (EBAY) reported strong third-quarter results Wednesday that showed particular strength in Paypal, its global payments business. The firm remains one of our best ideas, and we are maintaining our $47 fair value estimate (the stock is trading just over $30 per share).
The global ecommerce and online payments leader saw revenue increase an impressive 32% from the prior-year period, while non-GAAP net income jumped 18% and non-GAAP diluted earnings-per-share advanced to $0.48 (up 20%), meeting expectations. The revenue growth number was its best performance since 2006!
Paypal was particularly strong during the period, revealing a 14% increase in active registered accounts—Paypal’s net total payment volume was up over 30% in the quarter. The firm also noted that total mobile payment volume will surpass $3.5 billion in 2011, almost a five-fold increase over the previous year. The firm’s marketplace business also performed quite well during the third quarter, with gross merchandise volume (GMV), excluding vehicles, increasing 16% from the same period a year ago. Interestingly, the firm noted strength in GMV in Europe, as well as mobile GMV, which eBay thinks will hit over $5 billion this year (twice the levels of 2010). We think eBay is steadily improving its position in marketplace against Amazon (AMZN)—encouraging sales of new items in a fixed price format–something that continues to be overlooked by the Street.
The firm’s guidance was strong as well, though it did disappoint some. The global ecommerce giant expects fourth-quarter revenue to hit $3.35 billion and non-GAAP earnings-per-share to be $0.58 on the high end of the range, coming in about in line with our expectations. We think the major concerns with eBay rest in shaking off its perception as an “online flea market,” potential weakness in the fast-approaching holiday season, and integration risk with respect to recent acquisitions (Milo, Magento, and GSI Commerce).
All things considered, we think eBay’s quarter reaffirms our thesis that the firm is far from a dot-com bust. We’d be looking to add to our position in our best ideas portfolio on any meaningful pullback.