Brace for eBay's Revenue Explosion

NEW YORK ( TheStreet) -- Good news seems to be breaking out all over the place. Just the other day I heard that employment in the first quarter improved in 42 of the 50 states.

Then I completed my own investigation and published a report about a high school program in Oregon's state capital that is training students so they can graduate from high school and be ready to be a productive member of the workforce with a decent paying job.

No wonder the stock market averages keep on soaring to new heights. With more people finding jobs and the Fed doing all they can to accommodate increased employment, there's more hope and a greater willingness to spend money than there's been for quite awhile.

Yet, there's an enormous percentage of the Baby Boom population (ages 48 to 67) who are either under-employed or unemployed. Millions in this demographic have stopped looking for full-time employment and are finding other ways to earn money. Plus, they have "things" to sell, some of which they're inheriting from their parents at an ever-increasing rate.

One of the most popular ways for these self-made Internet entrepreneurs to auction off and unload their unwanted "things" is through the e-commerce platform owned and operated by eBay .

Ironically, it isn't eBay's online auction business that's boosting the future prospects for the company's stock. It's the transformation of the company by CEO John Donahoe and his team over the past five years into what Fortune magazine called it in its Feb. 25 edition "... a full-service e-commerce operation that helps big retailers such as Home Depot ... and hundreds of others navigate the complex world of mobile payments, online comparison shopping and same-day delivery."

This jettisons eBay into a much bigger league than ever before so that "eBay is quickly emerging as the shopkeeper's best answer to Amazon , which continues to disrupt the retail world with deep discounts and a dizzying array of new businesses," as the magazine article said.

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Perhaps that's one of the big reasons that UBS analyst Eric Sheridan initiated coverage on eBay on April 1 (no fooling) with a "buy" recommendation. Interestingly, Sheridan on the same day initiated coverage on AMZN, about which he wrote: "In the near to medium term, we expect that Amazon will remain in heavy investment mode as it invests for the revenue flywheel opportunities that will allow it to maintain 20% revenue growth for the next half decade. As a result, current valuation of the stock and near-term headwinds on operating costs keep us on the sidelines at this time."

Yet when it came to his recommendation on eBay, one of Sheridan's central points was focused on the company's PayPal division. "PayPal is innovating and disrupting the ecosystem of convenience paying and the future of money," he said.

Another firm, Compass Point, recently reiterated its rating of "neutral" for eBay, and yet it optimistically changed its price target from $50 to $66. So far, the median one-year price target from the analyst community is $62.

Devin Wenig, eBay's marketplace president, told analysts on March 28 that the company may end 2015 with at least 200 million active participants (aka, "users"). At the end of 2012, eBay had 112 million active users.

PayPal President David Marcus said emphatically during the same analyst presentation that PayPal would double the amount of payments it processed by 2015 from the $145 billion it processed in 2012. No wonder the analyst community is buzzing with excitement for eBay's future.

Looking at a one-year chart, we can see some of the catalysts for the stock's upward mobility and resiliency. Yet you can also see the "cross of contradiction" that shows the ascent of eBay's quarterly revenue per share growth and the descent of year-over-year diluted quarterly EPS growth.

EBAY Chart
EBAY data by YCharts

Apparently, the market is expecting the EPS growth numbers to show a marked improvement when eBay next reports its earnings April 18. The consensus estimate for EPS from the analysts who follow eBay is for an increase of nearly 13% to 62 cents per share.

The same group of analysts is looking for average estimated sales growth of close to 15% with an average estimated quarterly revenue increase to approximately $3.76 billion. As eBay continues its multi-year restructuring aimed at partnering with more retailers, revenue is likely to skyrocket.

CEO Donahue has laid out an aggressive three-year plan for analysts and for investors that would drive sales growth to $300 billion a year by 2015. That's up sharply from the $175 billion in sales last year, which includes all divisions of eBay, including PayPal. Last year PayPal alone increased its revenue by 26% from the previous year to over $5.6 billion.

You'd be well-served to watch and listen to what the leadership has to say about all of its plans to grow like the dickens over the next few years, and the details of that are found at its Web site's news and investor relations pages.

eBay is currently trading for less than 18 times forward (one-year) earnings. In contrast, AMZN is trading for almost 74 times forward earnings. No wonder eBay is looking better and better to both analysts and investors. The markets may be overdue for a correction, so an attractive entry point may appear soon.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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