eBay Inc: Three Reasons eBay Stock Could Soar

eBay incWhat’s Next for eBay Stock

In many ways, eBay Inc (NASDAQ:EBAY) is the perfect reflection of capitalism. It finds the perfect price for goods by connecting buyers and sellers, with very little friction in between. EBAY stock is built on a small transactions fee from all that commerce.

eBay has made an incredibly successful company off such a simple concept. Draw a straight line between anyone with something to sell and the person willing to buy it, and the rest is history. The important thing was that eBay charged the sellers, not the buyers.

But all this is ancient history, right? We all know and have used eBay, so what could have possibly changed to make EBAY stock surge? There are three reasons that come to mind, and all of them suggest eBay is vastly undervalued.

Three Bullish Factors for EBAY Stock

1. People’s Shopping Patterns Are Changing

This is one of those things that I find staggeringly obvious. Rather than getting up and going to a brick-and-mortar store, people are choosing to spend their money online. The shift to e-commerce is a fact of life, and has given rise to a new wave of retail giants like Amazon.com, Inc. and eBay Inc. Just look at the following chart from the Federal Reserve Bank of St. Louis. It shows e-commerce sales as a fraction of overall sales.

Data source: U.S. Census Bureau

The trend is clear as day: consumers are opting for the ease and affordability of online shopping. By cutting out the costs associated with brick-and-mortar stores, such as leasing real estate and hiring sales staff, online retailers are able to offer better prices.

2. eBay Has Made All the Right Acquisitions

Almost a decade ago, eBay bought StubHub, a company that dominates the secondary market for buying and selling entertainment tickets. That means that eBay gained direct access to people looking for cheap concert tickets and sports tickets. It’s those kinds of acquisitions that are going to be crucial as more and more firms gravitate towards online retail.

In order to keep a competitive edge, the big fish should collect specific avenues to niche markets. That’s why I was really excited to see eBay’s purchase of Cargigi, a company that helps car dealers post their listings online. (Source: “eBay Just Bought This Company to Bolster Its Motors Business,” Fortune, March 29, 2016.) Not only will the acquisition help bolster eBay Motors, but it also fits with the broader strategy I just mentioned.

3. The Company Is Going to Buy Back $1.8 Billion in Stock

Like Apple Inc., eBay believes in returning cash to its shareholders. It bought back nearly $550 million worth of EBAY stock in the last quarter of 2015, a significant amount relative to the size of eBay’s market cap. But that isn’t the end of its buyback spree. The company still has $1.8 billion of capital to return to its shareholders. (Source: “eBay Inc. Reports Fourth Quarter and Full Year 2015 Results,” eBay Inc, January 27, 2016.)

By itself and under normal circumstances, this share repurchase program would be enough to boost the value of EBAY stock. But when you add on the acquisition strategy and the overall trend towards e-commerce, huge gains on eBay stock are all but guaranteed.