Up 19% YTD, Where Is eBay Stock Headed?

eBay’s stock (NASDAQ: EBAY) has gained roughly 19% YTD, as compared to the 9% rise in the S&P500 index. However, at its current price of $52, the stock is trading 6% above its fair value of $49 – Trefis’ estimate for eBay’s valuation. 

Amid the current financial backdrop, EBAY stock has seen little change, moving slightly from levels of $50 in early January 2021 to around $50 now, vs. an increase of about 40% 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 5% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – 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 TM, 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?

The company surpassed the street estimates in the fourth quarter of 2023. It posted total revenues of $2.6 billion – up 2% y-o-y. It was partly because of a 33% growth in first-party advertising product revenues, followed by a 2% rise in gross merchandise value (GMV) to $18.6 billion. However, a 2% decline in active buyers and tough macroeconomic conditions negatively impacted the top line. On the expense front, the operating expenses as a % of revenues witnessed an unfavorable increase, leading to an operating margin of 16% vs 22.5%. That said, the income from equity investments grew from $319 million to $636 million. Overall, it resulted in a net income of $724 million – up 8% y-o-y.

The revenues grew 3% y-o-y to $10.1 billion in FY2023. It was due to a higher take rate (net revenues divided by GMV) despite a 1% drop in GMV. Further, tough macroeconomic conditions in the year negatively impacted the website traffic. On the cost front, the operating expenses as a % of revenues increased from 67% to 73%. However, the negative impact was more than offset by a jump in gain on equity investments from -$3.8 billion to $1.8 billion. Overall, the net income improved from -$1.27 billion to $2.77 billion. 

Moving forward, eBay’s revenues are estimated to touch $10.2 billion in FY2024. Further, the firm’s revenue per share (RPS) is likely to increase from $18.97 to $20.26 in the year. This coupled with a P/S multiple of 2.4x will lead to a valuation of $49.

[1] Returns as of 3/20/2024
[2] Cumulative total returns since the end of 2016

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