Shift To Online Marketplaces To Help eBay’s Stock?
Despite doubling from its March lows of this year, at the current price near $52, we believe eBay’s stock (NASDAQ: EBAY) is undervalued. eBay’s stock has rallied from $26 to $52 off the recent bottom compared to the S&P 500 which has risen by 50% from its recent bottom. The stock was able to beat the broader market in the last 6 months as the US government announced a string of measures along with stimulus packages announced in other economies to keep businesses afloat. eBay benefited additionally because (1) people were preferring online marketplaces which saw its merchandise volumes grow in double-digits even in April and May, and (2) eBay’s reached a deal to sell its classified business to Adevinta for $9.2 billion.
We think eBay still has potential to rise further despite a strong recovery over the recent months. Our dashboard What Factors Drove 40% Change In eBay Stock Between 2017 And Now? provides the key numbers behind our thinking.
Looking at the bigger picture, some of the rise over the last two years is justified by the roughly 9% rise in eBay’s revenues, which, in turn, led to a 36% rise in revenue per share (RPS) during this period as the number of shares outstanding saw a decline of 20%. Further, its Net Income has improved from $-1 Bil in 2017 to $1.8 Bil in 2019.
The P/S multiple fell from 3.9x at the end of 2017 to 2.8x at the end of 2019. The multiple rose back to 4.1x currently as more consumers moved toward online marketplaces during the pandemic.
Effect of Coronavirus?
The global spread of coronavirus led to lockdown in various cities across the globe, which affected industrial and economic activity. Online marketplaces gained more traction due to lockdown and restrictions in various regions leading to eBay gaining 8 million buyers in Q2 2020. For Q2 2020 Revenue was $2.9 billion, up 18% y-o-y while Gross Merchandise Volume was recorded at $27.1 billion, up 26% y-o-y.
In any case, over the coming weeks, we expect continued improvement in demand and subdued growth in the number of new Covid-19 cases in the U.S. to buoy market expectations. Following the Fed stimulus — which set a floor on fear — the market has been willing to “look through” the current weak period and take a longer-term view. With investors focusing their attention on 2021 results, the valuations become important in finding value. Expectations of revenue and earnings rising due to the continuous shift toward online marketplaces and with investors’ focus shifting to the 2021 numbers, eBay’s stock could see an upside in the near term. As per eBay’s valuation by Trefis, we have a price estimate of $60 per share for EBAY’s stock, reflecting almost a 20% rise from its current level.
What if you’re looking for a more balanced portfolio instead? Here’s a high quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.
See all Trefis Price Estimates and Download Trefis Data here
What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams