Here’s How 100 Million New Shoppers Can Impact eBay’s Valuation

Recently eBay‘s  (NASDAQ:EBAY) Chief Executive Officer pledged to attract 100 million new shoppers to its platform with ads aimed at millennials and a more focused push in emerging markets. eBay’s active user count is a key driver of its valuation, and we expect it to increase from 165 million in 2016 to around 213 million by 2023.

A faster pace of growth in users impacts eBay’s valuation significantly. As eBay works on several initiatives to make its platform easier for buyers and sellers, including the push to attract millennials and users in emerging economies, the total active users on its platform should increase steadily. If the company is able to meet the target set by its CEO and add 100 million new active users in the next three years (and continue a steady growth in users thereafter) there could be a more than 30% upside to our price estimate.

Instead of directly competing with e commerce leader Amazon, eBay’s strategy is to create a separate niche for itself in the market. The company is looking to focus on the “wow” factor to attract impulse sales rather than providing the convenience and best price to attract time strapped shoppers. eBay wants to distinguish itself as a marketplace where consumers can discover unique products and enjoy a pleasurable shopping experience. The company does not necessarily want to become a platform for online shopping for everyday products, and this should enable it to create a unique position for itself (rather than competing directly with Amazon) and attract more users to its platform. One of eBay’s goals is to offer richer unique inventory and bring more boutique sellers to its platform who can offer products that buyers cannot find elsewhere. The company is hoping that this will help attract more users to its platform.

We believe eBay is effectively executing its turnaround program and the results are visible in its performance. While the goal of attracting 100 million more users sounds ambitious, given the pace of turnaround initiatives it does not appear to be unattainable. We will be keeping a close eye on its performance in this regard going forward.

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