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Investment Overview for eBay (NASDAQ:EBAY)
Below are key drivers of eBay's value that present opportunities for upside or downside to the current Trefis price estimate for eBay:
- eBay Transaction Take Rate: We currently forecast the take rate, eBay's commission on items sold, to stabilize around current levels of 8.4%. There would be a 10% downside to our price estimate if the take rate were to decrease to 7% instead.
- eBay EBITDA Margin: We currently forecast eBay EBITDA margin to increase marginally to about 37.5% by the end of our forecast period. However, there could be more than 10% upside to our price estimate if margins rise much faster to 43%. On the other hand, there could be a 10% downside to our price estimate if margins were to fall to around 33% by the end of our forecast period.
For additional details, select a driver above or select a division from the interactive Trefis split for eBay at the top of the page.
eBay is known for operating the online marketplace eBay.com. The company's marketplace is where third-party buyers and sellers can transact in a variety of products including clothing, electronics, media, collectibles, automobiles and many other types of merchandise.
The payment services arm PayPal was spun off from eBay in 2015. eBay also divested its Enterprise business for a deal valued at $900 million in 2015. Accordingly we have excluded both these businesses in our valuation model.
Marketplaces Business Is Facing Challenges
The year-over-year growth rate in the marketplace business came down from 12% in 2012 to 8%, 7% and (-2)% in 2013, 2014 and 2015, respectively. In the first half of 2015, revenue in the marketplaces segment decreased by 4% and 3%. The company had asked all its users to change their passwords as a safety measure – this led to a slowdown in buying activity as some users did not change their passwords but exercised caution. Changes in Google SEO algorithm also weighed on the business during the latter half of 2015. The recent strengthening of the U.S. dollar has also had a large impact on this segment in the recent past.
Growth In Global E-Commerce Volume
The global e-commerce market is growing at healthy rates owing to growing popularity of online shopping. According to eMarketer , the global retail e-commerce market is expected to grow from $1.316 trillion in 2014 to $2.489 trillion by 2018 at a CAGR of 17%. In the event, eBay is able to overcome its challenges, it could benefit from this high demand in the market. However, owing to increased competition from Amazon, Alibaba and traditional retail giants, we expect eBay to under-perform the broader e-commerce market in the coming years.
Focus on Increasing Conversion Rate
Conversion rate is a key focus area for eBay, as it seeks to increase the success of sellers in converting listed items to sold items. eBay has implemented a number of features to increase the conversion rate on marketplaces and continues to improve customer experience on its marketplaces. eBay has also complemented these features with search engine optimization (SEO) changes and broadening its marketing channels to include social platforms. These efforts have resulted in active user base growing by 14% in 2013, 21% in 2014 and 3% in 2015. We expect the growth to continue in the short term.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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