Chart Pattern Predicts This Stock is Headed for a Double-Digit Breakout
U.S. e-commerce sales topped $256 billion in 2012, according to Statista Research, up nearly 13% from 2011. Of this amount, online retail sites brought in the largest chunk of revenue, at $186.2 billion.
By 2016, industry analysts predict online retail revenue will nearly double, reaching at least $361.9 billion. Research by eMarketer suggests the number of online shoppers in the United States will also grow, topping 175 million by 2016, up from 137 million in 2010.
#-ad_banner-#This expected growth is great news for leading North American online retailers like Amazon.com (NASDAQ: AMZN) and eBay (NASDAQ: EBAY).
Of the two, Amazon is currently top dog — based on the $61.1 billion in revenue the company generated over 2012. In comparison, eBay’s 2012 revenue was a piddly $14.1 billion.
But, investors may want to take note, because eBay is taking aggressive steps to vie for the top spot.
eBay’s CEO, John Donahoe, recently announced the goal of doubling active users by 2015. At present there are about 112 million active eBay users. By 2015, the company hopes for more than 200 million active users. By increasing its active user base, eBay intends to drive its global commerce volume from $175 billion in 2012 to $300 billion by 2015.
To help achieve these goals, the company recently altered its selling fee structure, reducing costs and making pricing less complicated. Through simplified fee structures, management hopes to bring more online merchants to eBay — and away from Amazon.
In another attempt to directly compete with Amazon, eBay is now offering small business loans to sellers. eBay merchants will have access to credit through their PayPal accounts. Amazon has been offering similar merchant loans since 2011.
eBay has also started offering same-day shipping, through its eBay Now service. For an extra $5, customers can place an order through a local retail store and have their item dropped off at their current location (home, office, gym, etc.), usually in under an hour. This on-demand delivery service directly competes with Amazon’s Prime service, which offers one-day shipping for $3.99 (plus an annual $79 fee).
However, one place where eBay already takes the cake from Amazon is in mobile commerce prowess. Through its eBay and PayPal apps, management anticipates mobile transactions will top $40 billion this year, up from $27 billion last year.
And, the company is committed to further driving mobile e-commerce growth. eBay is currently working on a new web-enabled retail interface and plans to aggressively push PayPal as a mobile banking solution. In 2012, PayPal processed more than $145 billion in transactions through its global 100 million active user base. Management would like to see this figure double in the near future.
Shareholders certainly seem to believe eBay can achieve its aggressive growth targets.
The stock is currently on a tear. In a little over a month, shares have risen about 16%, from a mid-March low of $49.55 to the current level, near $57.50. And the technicals point to further gains ahead.
Shares have been on a major uptrend for over a year. In February 2013, the stock peaked at a multi-year high of $57.27. Unable to sustain momentum, it quickly sank to important support near $50 by mid-March. However, shares just as quickly bounced off support and have been on the ascent for the past four trading weeks.
On Wednesday, April 10, the stock blasted past the recent $57.27 high, hitting a new 52-week high, and closing the day at $57.30. In doing so, a small U-shaped basing pattern was bullishly completed.
The measuring principle for a basing pattern — calculated by adding the height of the pattern to the breakout level — projects a new price target of $64.99 ($57.27 – $49.55 = $7.72; $57.27 + $7.72 = $64.99). At current levels, this target represents 13% potential returns.
If the stock approaches this price range, it would well exceed its 2004 all-time high near $58.20. With no historical overhead resistance in sight, shares could potentially move much higher.
One factor that could spur shares in the near term is upcoming first-quarter 2013 results, scheduled to be reported April 17.
For the upcoming first quarter, analysts project revenue will rise 15% to $3.8 billion from $3.3 billion in the comparable year-ago period. For the full 2013 year, analysts expect increased e-commerce sales will push revenue up 16% to $16.4 billion compared to $14.1 billion last year.
The earnings outlook is similarly optimistic. In all four quarters of 2012, the company beat earnings expectations. For the upcoming first quarter, analysts project earnings will increase 13% to $0.62 per share compared to $0.55 in the year-earlier quarter. For the full 2013 year, analysts estimate increased e-commerce demand will spur a 16% increase, with earnings reaching $2.74 per share from $2.36 last year.
Risks to consider: According to a study by Forrester Research, 33% of online shoppers start their search for new items on Amazon.com. For eBay to truly dominate the e-commerce marketplace, it will need to shift buyers’ perception so that consumers think of eBay for new goods, before Amazon. However, eBay is working toward this goal.
The company is aggressively developing its mobile platform to attract new shoppers — particularly in developing countries — who tend to use their mobile devices for retail transactions. As eBay engages more global buyers, the company should continue to grow well into the future.
Recommended Trade Setup:
— Buy EBAY at the market price
— Set stop-loss at $49.20, slightly below current support
— Set initial price target at $64.99 for a potential 13% gain by mid-2013