What’s The Upside To eBay’s Stock If It Reaches $10B In Transaction Revenues By 2020?

by Trefis Team
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eBay (NASDAQ:EBAY) has been struggling somewhat in the last couple of years on account of its inability to offer alternatives to PayPal and competition from the likes of Amazon. In addition to laying out plans for growth, eBay’s management notes that 2019 is likely to be a year of consolidation, which will drive growth in 2020. We expect a 10% upside to our price estimate in case eBay achieves $10 billion revenue in transaction revenues by 2020, which we explain further.

Our interactive dashboard on eBay’s Price Estimate outlines our forecasts and estimates for the company. You can modify any of the key drivers to visualize the impact of changes on its valuation, and see all of our technology company data here.

The entry of activist investor Elliott Management is also likely to result in incremental measures towards achieving profitability. The operating leverage in eBay’s marketplace business is likely to be one of the key starting points. We note that while this narrative is similar to other companies in which Elliot invests, the company’s alignment with Adyen as an alternative to PayPal is likely to be a key area of focus for the company to achieve a $10 billion sales number by 2020.

We estimate that an improvement in marketplace revenue would not only positively impact advertising revenue, but also profitability. In our base scenario, marketplace revenue for 2020 is $9.7 billion. We believe that if this revenue number moves up to $10 billion, it is also likely to boost the marketing and advertising revenue slightly, from $2.6 billion to $2.7 billion, due to higher demand. Additionally, the consequent benefits of operating leverage are likely to help the net margin increase marginally to 15%, versus our base case expectation of 14% for 2020. Accordingly, we expect a 10% upside to our $37 price estimate for eBay should the company’s transaction revenues touch $10 billion by 2020.

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