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Make a Bid for eBay Stock

There’s a lot of kerfuffle in the tech world these days — the Facebook (NASDAQ:FB) Home software for smartphones, Apple (NASDAQ:AAPL) struggling to stay dominant, Dell (NYSE:DELL) looking for a second act by going private and so on.

But one big story you might not have noticed is eBay (NASDAQ:EBAY). The stock gained 10% in a week towards the end of March on a rather gutsy target from CEO John Donahoe to hit the $300 billion mark in its e-commerce operations three years from now — a roughly 70% jump over last year’s $175 billion in gross sales. Donahoe also said eBay will roughly double its active users, from 112 million visits to 200 million.

“The turnaround is behind us, and we are now playing offense,” says Donahoe.

And who is eBay taking the fight to? Amazon.com (NASDAQ:AMZN), who else?

I am not entirely certain that Amazon is vulnerable to eBay. But I do know that a recent report said overall retail spending online will jump 62% by 2016 and that Black Friday transactions online topped $1 billion for the first time ever last year after surging 26% over 2011 numbers.

So eBay doesn’t have to double its size of the pie. It only needs to make modest expansion in market share and steal a bit from Amazon as the pie itself gets a whole lot bigger.

And let’s not forget the all-powerful PayPal arm of eBay. Paypal currently processes over $100 billion in transactions all by itself with over 100 million active accounts worldwide.

PayPal revenues represented 39% of total eBay Inc. revenues in Q4 2012, and that’s after 24% year-over-year growth. Continued momentum here is key, especially due to mobile banking technology and the general move away from cash transactions.

Clearly investors like what they see, judging by the recent bump in share prices. And UBS just slapped a “buy” rating on eBay last week with a $64 price target — 15% upside from here.

If eBay earnings are strong on April16 when it posts Q1 numbers, expect this stock to break out. Given its four consecutive earnings surprises, there’s a very good chance it will at the very least hit its numbers.

Valuation is a bit of a concern, with a forward P/E of around 17, but some outsized growth in the next few quarters could easily push that earnings multiple down. Profits rolled back in 2012 but that was partially because eBay saw a $1 billion windfall from the sale of its Skype stake to Microsoft (NASDAQ:MSFT) in late 2011. So don’t read too much into the fundamentals.

The bottom line is that there are only a handful of dominant names in e-commerce, and eBay remains one of them. It’s CEO is clearly not content to rest on past successes and is putting forth an ambitious vision for the company in the next few years.

Investors who get in on the ground floor will be served well if those plans pan out.

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Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

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