‘Tis the Season for eBay: Upside to $37 Fair Value Warranted

EBAY: eBay logo

By now you’ve probably heard that the Holiday buying season started off with a bang on Black Friday, and was followed with more positive news from consumers on Cyber Monday. Not surprisingly eBay (NASDAQ:EBAY), Amazon (NASDAQ:AMZN) and other online retailers saw a huge jump too. What may surprise some investors was the fantastic November eBay announced. An 18% jump in year-over-year sales for the month, along with a solid start to the Holidays has investors cheering. Especially considering this comes on the heels of a 13.4% year-over-year jump in October.

The company’s sales increases have not gone unnoticed by investors, starting the week with a bang. But even with the recent 5% jump in price, the stock remains well below the Trefis target of $38.68 a share. And with some of the recently announced changes, upward revisions may be warranted.

eBay Changing a Winning Model

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eBay remains one of the Internet’s original success stories. It got to where it is by sticking to the formula of providing individuals and companies with a forum for buying and selling items ranging from cars to collectibles. So, why mess with a good thing, right?

According to eBay’s management, that’s exactly what they’ve done and is likely at least one of the reasons for the company’s recent success.

The change management refers to is the EBAY’s recent emphasis on fixed prices, which in turn result in faster purchases. As the change takes hold heading into the Holiday shopping season and even into next year, it’s likely there will be even more good news coming from the eBay camp.

Upside to Trefis Estimates

The eBay Marketplace Division drives over 52% of the company’s revenues. As the new fixed pricing model matures, increased revenue that comes from it should continue to grow as well. Added to all this is the likelihood eBay’s PayPal Division (8.3% of the target price) will benefit too, and investors may find $38.68 a share a bit short sighted.

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