Any More Upside in eBay Stock?
eBay Inc (NASDAQ:EBAY) will be 21 years old next month, making it one of the oldest Internet companies in existence. So, what can investors expect from eBay stock, and is it worth owning long-term? Before I get into that, let’s consider the last 12 months.
eBay stock is up roughly 20% since the beginning of the year, after spending nearly the entire first half under water.
eBay stock has had a meaningful run-up in the last eight weeks, which can be attributed to the positive earnings guidance that company officials offered during its Q2 2016 earnings announcement. (Source: “Q2 2016 Financial,” eBay Inc, July 20, 2016.) But what can shareholders expect from eBay Inc going forward?
Where’s the Growth for eBay Coming From?
The company defines itself in terms of its three business segments: its online marketplace (the global “ebay.com” portal), “StubHub” (its online marketplace for anything you need a ticket to get into), and “Classifieds” (local online classified ads like Craigslist and other international brands). Among these segments, the marketplace is the most important.
At the end of 2015, eBay.com generated more than $6.1 billion in transaction revenue and nearly $1.1 billion in advertising/marketing revenue. StubHub came in second at about $725.0 million. And their Classifieds properties brought in an additional $703.0 million in “marketing services and other” revenue. (Source: “eBay Inc (Filer) CIK: 0001065088,” U.S. Securities and Exchanges Commission, December 31, 2015.)
For me, the main questions for investors ought to be: 1) How will eBay Inc grow each of these segments? 2) Where is that growth going to come from? and 3) Will these be the only segments that drive eBay stock over the next 21 years?
eBay’s marketplace business has evolved from being a place where people auctioned off vintage knick-knacks and sold them to the highest bidder to a place where now 80% of the items sold are brand-new, and about 86% of the company’s total gross merchandise volume (GMV) comes from fixed-price sales. (Source: eBay Inc – Q2 2016 Company Fast Facts, eBay Inc, last accessed August 24, 2016.)
To me, that sounds a lot like what Amazon.com, Inc. (NASDAQ: AMZN) does. Except that Amazon generates about $100.0 billion doing it, compared to eBay Inc’s roughly $8.0 billion. (Source: U.S. Securities and Exchanges Commission, op cit.) So, there is an obvious market share to gain, but unless Amazon stumbles, it could be tough to come by.
StubHub’s aforementioned $725.0 million in revenue represents about 14.5% of the total online ticket sales market, so here too there is plenty of market share up for grabs. (Source: “Online Event Ticket Sales in the US: Market Research Report,” IBISWorld, last accessed August 24, 2016.) It’s just a matter of how eBay Inc goes about getting it.
The really interesting segment, however, might just be the online classified ad business, which operates in a global industry that could generate $47.0 billion annually by 2020. eBay Inc’s roughly $700-million piece of that pie is more crumbs than slice, so there is huge upside here. (Source: “Here’s Why Online Classifieds Are Fascinating,” Mahesh VC, March 22, 2016.) And there are two reasons why this is the most thought-provoking segment in my opinion.
The Bottom Line For eBay Stock
The first is that eBay Inc’s 2015 annual report states that the company is “driven by the notion of persistent reinvention.” Owning this industry would definitely reinvent the company. The second reason is that eBay Inc has more than $8.0 billion in cash and short-term investments sitting on its balance sheet. (Source: U.S. Securities and Exchanges Commission, op cit.) That’s more than enough to make the types of acquisitions necessary to reinvent this old auction house.
These may be enough reasons to tuck eBay stock away and see how it ages.