Has the market already factored in a decrease in eBay’s market share?

October 14th, 2015 by Trefis Team
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eBay (NASDAQ:EBAY),  is facing tough competition from both established and newer players in the e-commerce market.  Alibaba and Amazon are its closest threats and the online retailing other giants such as Walmart would also impact eBay.  (Read Tough Road Ahead for eBay  As It Battles Increased Competition.) Average spends per active user in eBay declined from $636 in 2013 to $515 in 2015. Although number of active users has increased gradually and we expect this trend to continue over the forecast period, the growing competition may have a dampening effect.  eBay’s market price is around 20% lower than our estimate and the market may be factoring a decline in number of users.

See our complete analysis for eBay.

Current price may be suggesting flat growth in eBay’s user base

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We estimate that Transaction Revenues constitute more than 70% of eBay’s valuation.  The number of active users is a key driver for this segment. Using Trefis interactive technology, if we assume the number of active users on eBay to remain flat at current levels (around 167 million), over the forecast period, our valuation would be close to the current market price.

The market could also be expecting significant decline in EBITDA margin

eBay’s EBITDA margin for Transaction Revenues was 51.8% in 2014. We expect this number to fall to 46.7%  in 2015 and then stabilize and improve slightly over the long run. However, if we assume that EBITDA margin continues to decline over the forecast period and falls to 36.3%, our valuation for eBay would come close to its current price.

Market seems to have factored in eBay’s loss to competition

While eBay is battling tough competition and we expect it to underperform the broader e-commerce market, its stock price appears to have adjusted for a significant decline in market share. While the global B2C e-commerce market is expected to grow at a 12.5% CAGR between 2014-18, flat number of users on eBay implies that it would lose out on e-commerce growth completely. It appears that the market has already factored eBay’s loss to competition in the current stock price.

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