Trailing The S&P By 20% This Year, Can eBay Stock Rebound?

+4.65%
Upside
43.80
Market
45.84
Trefis
EBAY: eBay logo
EBAY
eBay

eBay stock (NASDAQ: EBAY) currently trades at $43 per share, around 47% below (89% upside) its level of $81 on October 23, 2021 (pre-inflation shock high), and seems undervalued. EBay saw its stock trading at around $42 at the end of June 2022, just before the Fed started increasing rates, and is trading 2% above that level now. In comparison, the S&P 500 gained about 25% during this period. The stock price has struggled over the recent quarters due to a couple of factors such as lower website traffic, and a drop in the gross merchandise value (GMV). It was due to tough macroeconomic conditions and normalization of consumer buying behavior post-pandemic. 

Amid the current financial backdrop, eBay stock has seen little change, moving slightly from levels of $50 in early January 2021 to around $45 now, vs. an increase of about 25% for the S&P 500 over this roughly 3-year period. Overall, the performance of eBay stock with respect to the index has been lackluster. Returns for the stock were 32% in 2021, -38% in 2022, and 3% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 23% in 2023 (YTD) – indicating that EBAY underperformed the S&P in 2022 and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Discretionary sector including AMZN, TSLA, and HD, and even for the megacap stars GOOG, MSFT, and AAPL. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could EBAY face a similar situation as it did in 2022 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

Returning to the pre-inflation shock level means that EBAY stock will have to gain around 89% from the current levels. However, we do not expect that to materialize anytime soon and estimate eBay’s valuation to be around $46 per share. 

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Our detailed analysis of eBay’s upside post-inflation shock captures trends in the company’s stock during the turbulent market conditions seen over 2022 and compares these trends to the stock’s performance during the 2008 recession.

2022 Inflation Shock

Timeline of Inflation Shock So Far:

  • 2020 – early 2021: Increase in money supply to cushion the impact of lockdowns led to high demand for goods; producers unable to match up.
  • Early 2021: Shipping snarls and worker shortages from the coronavirus pandemic continue to hurt the supply
  • April 2021: Inflation rates cross 4% and increase rapidly
  • Early 2022: Energy and food prices spike due to the Russian invasion of Ukraine. Fed begins its rate hike process
  • June 2022: Inflation levels peak at 9% – the highest level in 40 years. S&P 500 index declines more than 20% from peak levels.
  • October 2022 – July 2023: Fed continues rate hike process; improving market sentiments help S&P500 recoup some of its losses
  • Since July 2023: Fed keeps interest rates unchanged to quell fears of a recession, although another rate hike remains in the cards.

In contrast, here’s how EBAY stock and the broader market performed during the 2007/2008 crisis.

Timeline of 2007-08 Crisis

  • 10/1/2007: Approximate pre-crisis peak in S&P 500 index
  • 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
  • 3/1/2009: Approximate bottoming out of S&P 500 index
  • 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)

EBAY and S&P 500 Performance During 2007-08 Crisis

eBay stock declined from nearly $15 in September 2007 (pre-crisis peak) to below $4 in March 2009 (as the markets bottomed out), implying EBAY stock lost almost 73% of its pre-crisis value. It recovered post the 2008 crisis to levels of around $9 in early 2010, rising 117% between March 2009 and January 2010. The S&P 500 Index saw a decline of 51%, falling from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied 48% between March 2009 and January 2010 to reach levels of 1,124.

EBAY Fundamentals Over Recent Years

eBay revenues increased from $7.4 billion in 2019 to $8.9 billion in 2020 because of the Covid-19 crisis. Further, it improved to $10.4 billion in 2021, before declining to $9.8 billion in 2022.

Similarly, earnings increased from $2.10 in 2019 to $20.87 in 2021, before decreasing to -$2.27 in 2022.

Conclusion

With the Fed’s efforts to tame runaway inflation rates helping market sentiments, we believe eBay (EBAY) stock has the potential for strong gains in the long term once fears of a potential recession are allayed.

 Returns Dec 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 EBAY Return 4% 3% 44%
 S&P 500 Return 3% 23% 111%
 Trefis Reinforced Value Portfolio 7% 37% 601%

[1] Month-to-date and year-to-date as of 12/15/2023
[2] Cumulative total returns since the end of 2016

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