Choppy markets require creative thinking above all, and choosing stocks that many investors think have moved beyond their heyday.
At the moment, trading in the low $60s, shares of eBay have declined 5% since the start of January, and more than 20% relative to highs above $80 notched in November, before it began decaying alongside many other tech stocks.
And though now eBay’s GMV is down versus pandemic-level heights, the company is still growing revenue thanks to its shift toward managed payments, giving eBay a far expanded take rate and more monetization over its end-to-end customer transactions.
In spite of the revenue growth, investors are understandably nervous about the fact that eBay’s active buyer base has declined over the past several quarters as the pandemic recedes into the background.
Sure, there’s certainly fundamental risk in eBay as a legacy e-commerce stock: but is that risk worth the wide valuation disparity versus the broader market? In my view, the cheapness of eBay’s stock more than makes up for the potential risks.
eBay is currently yielding ~1.1%, which isn’t impressive on its own, but the company also has $5 billion remaining on its stock buyback authorization – which, at eBay’s current market cap of ~$40 billion, covers a healthy ~12% of eBay’s market cap.
Buy and hold onto eBay until it hits a ~17x forward P/E, representing a $78 price target .
Let’s now go through some of eBay’s most recent fundamental highlights.
Total GMV , which represents the total dollar amount of transactions on the eBay platform, declined -12% y/y on a constant-currency basis to $19.45 billion.
Active buyers peaked at 166 million in Q1 of this year, up 8% y/y – then proceeded to slip.
Revenue, however, was a standout.
Aside from greater monetization for eBay, the company notes that handling payments in-house has also removed friction in the seller experience.
For example, the company recently released seller coupons, which have helped to drive customer loyalty to certain power sellers.
In addition, eBay has continued to showcase dominance in certain niche categories that Amazon and other online sellers are lacking.
In late July, we launched new features, including price guides and collections, which allow trading card enthusiasts to view, manage, and track the value of their portfolios.
In addition, close to a quarter of a million buyers have used eBay’s newly-launched price guide to visualize the changing value of their favorite trading cards.
eBay has also driven operating expense efficiencies, with total operating expenses of 41.7% of revenue down three points y/y, driven largely by economies of scale in sales and marketing spend.
In my view, there’s a lot to like about eBay while it’s trading at its value-friendly ~14x P/E ratio, bolstered as well by a generous capital returns program.
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Disclosure: I/we have a beneficial long position in the shares of EBAY either through stock ownership, options, or other derivatives.