The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology  – Senior Analyst at I Know First. 

Why You Should Go Long On eBay

Summary:

• The decision to gradually drop PayPal as its main payments processor is a great reason to go long on eBay.
• However, I want to discuss two more compelling reasons why EBAY is a buy right now.
• First is eBay’s new Always Open initiative for small and medium brick and mortar retailers. This platform will help eBay recruit more retailers to its online marketplace.
• The more important second reason is eBay’s new interest in Artificial Intelligence. Online shopping can benefit from smarter product search and recommendations.
• EBAY touts positive near and long-term algorithmic forecasts. Its technical indicators are also bullish.

PayPal’s (PYPL) gradual removal as the main payments processor can reportedly lead to up to $2 billion in new revenue for eBay (EBAY). Stiff competition from Amazon (AMZN) and Alibaba (BABA) required eBay to get another payments processor with more reasonable rates. The savings from cheaper transaction fees could improve eBay’s lethargic annual revenue growth performance.

The last three years have been a slow-growth burden on eBay’s revenue. Anything that could help boost its topline is a welcome development. As you can see from the chart below, eBay’s 5-year average annual revenue growth has been less than 10%.

 (Source: Morningstar)

 The slow growth of eBay’s topline is why its valuation is much lower than Amazon’s. You can see from the YChart below just how eBay was left in the dust by Amazon over the past five years.

Adyen’s Lower Processing Fees Can Attract More Sellers

Cheaper seller fees could also encourage more businesses/people to sell at eBay’s online marketplace/auction site. Sellers have complained for years that eBay and PayPal payment transfer fees are too high. Maybe eBay’s new payments processor partner, Adyen, will charge notably less than PayPal. PayPal’s rates especially on international/cross-border payments are high.

In my country, PayPal charges 4.4% + 15 pesos ($0.30) from every payment received on eBay sales. This applies to domestic sales too. I checked out Adyen’s flat universal rate for Philippines. It is notably lower at $0.12 per payment processed on eBay. Adyen’s payment fee if you use a digital wallet such as GCash is only 1% + 30 pesos ($0.6). Using credit or debit cards will only be charged with current Interchange++ rates, which usually ranges from 0.2% to 1%.

(Source: Adyen)

eBay’s new aggressive marketing tactics like offering free shipping for smartphones here in the Philippines means its partner sellers’ margins are under more pressure. Letting their partners choose the cheaper payment processing rates of Adyen is a great way to help their bottomline.

(Source: Motek Moyen)

Attracting More Small and Medium Business

 Adyen’s lower payments processing fees complements eBay’s new ‘Always Open’ program for small and medium brick and mortar retailers. Traditional small shop owners who want to increase their sales via eBay’s 24/7 global-wide network will really first consider the expenses involved.

Joining ‘Always Open’ program is free as a way to attract more sellers on eBay. However, this new marketing option will still require partner retailers to spend money for online inventory tracking, shipping/delivery, and payments processing. If retailers can save money by using Adyen and not PayPal, they will be more amenable to joining eBay’s ‘Always Open’ program. This is the second re

(Source: eBay) 

The auction focus of eBay has been in decline for years. It is now trying to shift its business model to be more similar to Amazon’s marketplace. eBay needs the support of small and medium businesses to increase its total addressable market. The more sellers there are, the more products are made available for sale on eBay. The more there products for sale, the more potential customers there are.

Amazon’s Gross Merchandize Volume [GMV] in 2017 was more than $190 billion. eBay’s GMV last year was only $88.4 billion. This is in spite of eBay operating in more countries.

(Source: Statista)

 eBay’s Emerging Interest In Artificial Intelligence

The last good reason why you should go long EBAY is the company’s new push for Artificial Intelligence. The recent hiring of Jan Pedersen as chief scientist for eBay’s Artificial Intelligence efforts is commendable. Pedersen can accelerate eBay’s foray into computer vision, machine intelligence, and natural language processing [NLP].

All these three, computer vision, machine intelligence, and NLP can help people get faster, more accurate product searchs and comparison. NLP can also mean voice commands can be used to search for particular products. Voice search is the future since the smartphone is now the emerging go-to compute device. Machine Intelligence means eBay and its partner sellers can build smart chatbots that can immediately reply to customer queries.

Pedersen’s team can also help in eBay’s Augmented Reality kit. An AR kit can help people gauge how furniture can look on their living room/kitchen/bedroom is a highly-desirable gadget. Using the AR kit, ladies can also try on clothes/jewelries for sale online at eBay.

Conclusion

Yes, eBay doesn’t have the market-darling appeal of Amazon. However, this company deserves a slot in your long-term growth portfolio. The company is doing the right moves which can help it compete better against Amazon. I speculate that eBay, like Amazon, will eventually start selling its brand of products for fixed price tags.

The success of Amazon is partly because it has its product portfolio. It doesn’t sorely rely on third-party sellers. The future of eBay is brighter if it can operate more like Amazon. It already copied the highly successful Amazon Prime loyalty program. Copying everything that makes Amazon successful is highly recommended. The eBay Bucks Rewards Program should be extended to most countries where it operates.

My buy rating for EBAY is congruent with its positive near, medium, and long-term algorithmic forecasts.

Near-term and long-term technical indicators are very bullish for EBAY. It makes perfect sense for growth-minded investors to bet on eBay this year.

(Source: Investing.com)

Past I Know First Forecast Success with EBAY

I Know First’s algorithm has made accurate predictions on EBAY in the past, such as its bullish article published on October 14, 2016. I Know First’s algorithm predicted for one year a signal of 158.77 and predictability of 0.41. Since then, EBAY shares increased by 36.28 % in line with the I Know First algorithm’s forecast.

Current I Know First subscribers received this bullish forecast for EBAY on October 14, 2016.

To subscribe today click here.

I Know First Algorithm Heatmap Explanation

The sign of the signal tells in which direction the asset price is expected to go (positive = to go up = Long, negative = to drop = Short position), the signal strength is related to the magnitude of the expected return and is used for ranking purposes of the investment opportunities.

Predictability is the actual fitness function being optimized every day, and can be simplified explained as the correlation based quality measure of the signal. This is a unique indicator of the I Know First algorithm. This allows users to separate and focus on the most predictable assets according to the algorithm. Ranging between -1 and 1, one should focus on predictability levels significantly above 0 in order to fill confident about/trust the signal.