Does eBay’s Stock Have More Than 20% Upside?

by Trefis Team
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Having gained more than 43% in 2020, eBay’s stock (NASDAQ: EBAY) still has further growth potential of about 20% in the near term. EBAY’s stock has rallied from $36 to $52 in 2020 compared to the S&P 500 which moved 14% in the same period. The company has seen good revenue growth over recent years, while its P/S multiple has remained flat. We believe the stock, after the recent rally, still has potential for further growth. Our dashboard Buy or Sell eBay’s Stock has the underlying numbers.

Due to the Covid-19 crisis, consumers have shifted toward online marketplaces, which benefited eBay as it saw its revenues rise by 10% in the first nine months of the year, compared to the same period in the previous year. In Q3 2020, eBay beat consensus estimates for revenue recorded at $2.6 billion, up 25% y-o-y and earnings recorded at $0.95 compared to $0.37 in the same period of the previous year. Further, the company reported $1.66 billion in cash inflows from operating activities for the first nine months. Trefis estimates Net Income to increase to $1.9 billion for 2020, increasing the EPS to $2.68. Thereafter, revenues are expected to grow to $11.9 billion in 2021. In addition, the EPS figure is likely to improve to $2.96, which coupled with the P/E multiple of around 21x will lead to eBay’s valuation of $63, up more than 20% from the current market price.


[Updated 10/08/2020]  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.

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.


The actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard Trends In U.S. Covid-19 Cases provides an overview of how the pandemic has been spreading in the U.S. and contrasts with trends in Brazil and Russia. With investors focusing their attention on 2021 results, the valuations become important in finding value.

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.


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