The stock price of eBay (NYSE: EBAY) has seen a solid 50% rise this year, driven by a rebound in gross merchandise volume. The company saw higher GMV of $87.4 billion in 2021, but it has declined since then to $73.2 billion in 2023, due to a challenging macroeconomic environment. Higher inflation and weak consumer sentiment have weighed on the company’s top-line growth. However, the company has seen a slight recovery this year, with its GMV rising 1% and its take rate (net revenues divided by GMV) also improving marginally to 13.9% for the nine-month period ending September 2024. Separately, is Disney undervalued? See Disney Stock To 2x?
Looking at a slightly longer period, eBay has seen its stock rise nearly 60% from levels of $40 in early 2023 to $63 now. This can be attributed to:
- a 43% rise in the company’s P/S ratio from 2.2x in 2022 to 3.2x now;
- a 5% rise in revenues from $9.8 billion to $10.3 billion over this period; and,
- a 7% fall in total shares, thanks to $7 billion the company spent on share repurchases.
What’s Happening With eBay?
eBay’s revenue growth lately has been driven by growth in its focus categories, which includes auto parts and accessories, collectibles, handbags, refurbished goods, and luxury fashion. This has helped it see higher GMV and take rate over the recent quarters. eBay reported its Q3 results last month, with revenue and earnings slightly ahead of the street estimates. However, its Q4 guidance missed the consensus estimates, weighing on its stock price.
The company has been targeting AI to bolster its sales by offering personalized recommendations. Its focus on certain categories, such as auto parts and accessories, seems to be working well for the company. The company acquired Shutl earlier this year to offer same-day delivery. Still, eBay faces tough competition from the likes of Amazon, Walmart, Etsy, and Temu, among others.
Looking at the company’s profitability, its operating margin declined from 24% in 2022 to 21.3% now. Given the fall in revenue and operating margin, eBay’s adjusted net income declined from $2.7 billion in 2022 to $2.3 billion in 2023. However, its share repurchases helped the bottom line expand from $4.02 to $4.24 over this period.
Does EBAY Stock Have Any Room For Growth?
Although EBAY has outperformed the broader markets so far this year, the increase in EBAY stock over the recent years has been far from consistent, with annual returns being more volatile than the S&P 500. Returns for the stock were 34% in 2021, -36% in 2022, and 8% in 2023. In contrast, the Trefis High Quality Portfolio, with a collection of 30 stocks, is much less volatile. And it 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 around rate cuts and multiple wars, 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? From a valuation perspective, we think it’s fully valued. We estimate eBay valuation to be $60 per share, slightly below the current market price of $64. At its current levels, EBAY stock is already trading at over 12x its forward expected earnings of $5.21 per share in 2025. This compares with the stock’s average P/E ratio of 11x over the last five years.
Furthermore, investors should take into account the risks as well. There are three factors – tariffs, deportations, and low taxes – that would make it difficult for the Fed to fight an inflation spike in coming months. Our take on Could S&P Crash More Than 40%? has more details on the above factors. And if the U.S. Fed were to pause the rate cuts, amid higher inflation, it wouldn’t bode well for the consumer sentiment, weighing on eBay’s performance.
While EBAY stock looks like it is fully valued, it is helpful to see how eBay’s peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
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