EBay Stock Wont Go Much Lower From Here

  • eBay's Earnings multiple is close to 2008 and 2009 levels when the eBay stock was trading at up to 50% lower  than current levels.
  • eBay's recent agreement with Tianjin municipal government in China should boost the company's base in China.
  • The growing e-commerce tailwind will help eBay's growth. Risk to the downside is less compared to competitors with higher valuations.

The Fed's recent dovish comments in relation to the pace of interest rate hikes in the US has definitely put a floor under the dollar for the time being. Commodities such as gold and oil rallied hard on the Fed's announcements and analysts are now wondering whether this could signal a permanent top in the dollar index. We will have an idea in the next few weeks as I'm expecting a bounce back to at least the 96.5 level as the 5 day RSI indicator has reached oversold levels (see chart).


A company like eBay (NASDAQ:EBAY) has much to gain if the dollar keeps sliding throughout 2016. In one way it needs dollar weakness to steady the ship considering the dire performance of eBay stock price over the last 4 months (down almost 19% since the 30th of November).

EBAY stock chart

Source: Ebay stock price chart by amigobulls.com

Furthermore, eBay's Q4 2015 earnings were nothing to write home about as revenue was basically flat on a rolling year basis. However, what really hurt the eBay stock price in the aftermath was the company's forward guidance of $2.05 to $2.1 billion in revenue and an EPS of between $0.43 and $0.45, which were both well below consensus estimates. However, I see guidance being revised up if the dollar index can remain below 95 as 60% of the company's business takes place in international markets and since US goods (which is a big export driver) are more expensive for international customers when the dollar is strong, we should see US exports gradually increasing if I'm right on my US dollar index assumption. Here are other strong reasons why eBay stock looks attractive at these levels.

In terms of valuation, eBay has a current earnings multiple of 17 and a forward earnings multiple of 11 which are undervalued as the industry's average is over 30. I simply don't see eBay stock as a value trap when you look at its metrics closely. Its active buyers for example reached 162 million in Q4 2015, which was a 5% increase over the same quarter in 2014. No matter how negative some bears are about this stock (due to its poor growth rates compared to the likes of Amazon (NASDAQ:AMZN), eBay will be helped by the e-commerce tailwind.

The market research company e-Marketer predicts that global retail sales will grow to $28.3 trillion by 2018 from $22.5 billion in 2014 and eBay which still accounts for almost 8% of all US retail transactions will certainly take some of this pie. Furthermore, eBay's cash balance and equity (both over $6 billion) is on par with debt numbers (another $2.25 billion to be issued shortly) and free cash flow came in at $3.37 billion last year. Since eBAY is only a facilitator and not a company that holds inventory, it makes money on transactions and so, transitioning the portal to being a provider of more new goods makes sense in the long term. Therefore, despite the company currently not paying a dividend, the company could easily buy back more stock which would be favorable for earnings and shareholders alike especially with the stock price at these levels.

China probably offers the greatest potential in the e-commerce space and eBay has pounced on the opportunity. The e-commerce company recently signed an agreement with the Tianjin municipal government where the objective is to help Chinese companies export their products through eBay's e-commerce portals. The governments "stamp of approval" is significant here and eBay should definitely see a meaningful increase of Chinese sellers doing business on its platforms. Some analysts have stated that this move will adversely affect eBay's US sellers as cheaper products from China will, undoubtedly, be available for sale on eBay but I believe eBay made the right move here. Although eBay has a significant US seller base, sellers will have to become more resourceful over time to stay competitive as more and more products become available online. And remember eBay's goal is to increase the number of transactions and sellers as margins on products in the responsibility of the respective sellers.

The debt that the company is going to take on will more than likely be used to buyback stock or acquire smaller companies. Why? Well, buybacks make sense at present but what shareholders would really like to see happen would be a meaningful expansion of StubHub outside the US. StubHub (largest ticket marketplace in the US) grew at a 30% clip last quarter (see chart) so international expansion of the platform has to be foremost on the agenda one would think.


Furthermore, there have been a few updates recently that should boost StubHub's sales in the near term. Firstly, StubHub offers the ticket buyer a view from his or her seat before purchase. This little trick definitely incentivizes the purchase and many smart sellers know this so they buy good tickets well in advance of the event in order to sell them at a higher price later on. This suits eBay perfectly as the more the activity (buying and selling) that happens around a given ticket, the more the company makes through booking fees. Moreover, the platform should see even more booking fees, going forward, as a result of its intention of being a successful primary ticket seller. It has already partnered with Philadelphia 76ers and more agreements, undoubtedly, are on the way considering the low market share StubHub presently has in the primary ticket market.

To sum up, eBay has too much going for it for the stock to fall meaningfully from these levels. Its low valuation, strong growth in StubHub and Classifieds will eventually get noticed by the market which will lead a rally in the eBay stock price. China also is crucial and eBay seems to have its finger on the pulse there with the recent Tianjin deal. Furthermore, e-commerce sales worldwide continue to rise which makes me believe that we won't see eBay stock trading at prices much lower than current levels

Jack Foley Jack Foley   on Amigobulls :
Author's Disclosures & Disclaimers:
  • I do not hold any positions in the stocks mentioned in this post and don't intend to initiate a position in the next 72 hours
  • I am not an investment advisor, and my opinion should not be treated as investment advice.
  • I am not being compensated for this post (except possibly by Amigobulls).
  • I do not have any business relationship with the companies mentioned in this post.
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Comments on this article and EBAY stock

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“There are a lot of questions out there and I don’t have any of the answers,”—eBay CEO Devin Wenig, Goldman Sachs Technology And Internet Conference, 10 Feb. 2016.

Notwithstanding the otherwise constant stream of disingenuous and delusional nonsense that flows from eBay/PayPal, the share price history of these two clunky operators demonstrate the reality ...

Aug 2007: (pre John Donahoe) EBAY ~$40; AMZN ~$40;
Jul 2015 (pre eBay-PayPal split): EBAY ~$66; AMZN ~$480;
Jul 2015 (post-split): PYPL ~$37; EBAY ~$28; AMZN ~$530;
Currently: PYPL ~$41; EBAY ~$24; AMZN ~$560—LOL ...

PayPal is standing still, and eBay is effectively going backwards—at a rate of knots ...

Notwithstanding the "spin-off" of PayPal from eBay, eBay and "PreyPal" remain effectively joined at the hip, and anyone that thinks otherwise is simply uninformed; and, thanks to a continuation of most of the destructive policies introduced over the eight year reign (2007–2015) of the "Pain from Bain", John Joseph Donahoe II, the eBay marketplace is continuing on its slow journey down the toilet; nevertheless, during Johnny Ho's occupation of the eBay corner office, this cretin and his gang of hand-picked Keystone Kops still managed to obtain for themselves massive, unearned, "performance" bonuses—while the company's "long" shareholders received not a single penny.

PayPal is a clunky, non-bank-licensed, non-deposit-insured, virtually non-regulated, "pretend" bank; a higher fee-charging payments intermediary that, in the main, rides on the back of the world's banks' existing payments systems, with no formal agreement with those banks other than PayPal's operating of a credit card merchant account facility with, and the making of direct debits/credits on some users' bank accounts via, one of those real banks.

PayPal is, in its own words, "a merchant of sorts", it is not a licensed "bank"; virtually everything that "PreyPal" does is done via "marketing" arrangements with licensed financial institutions—for example, look for the identity of the actual credit provider (in the micro print) on their credit providing instruments ...

Funds received via "PreyPal" are at risk of being subjected to arbitrary holds; funds left "on deposit" with PayPal are not FDIC-insured. Even more perilous (for PayPal's shareholders), the great majority of PayPal's business originates from its (still) effectively mandated place on the eBay marketplace, so it logically follows that—with the destructive Johnny Ho-Ho-Ho now sitting at the head of the PayPal boardroom table—"PreyPal" will undoubtedly be accompanying eBay on its journey to the sewage farm.

The reality is, PayPal's parasitic, higher fee-charging payments operation has little long-term future outside of its mandated place on the atrophying eBay marketplace now that professional online/mobile payments offerings from MasterCard ("MasterPass") and Visa ("Visa Checkout") are available to any online merchant that has (or can obtain) a credit card merchant account with a real bank.

And, with respect particularly to "mobile" payments, notwithstanding Apple Pay's disappointing initial showing, methinks Apple Pay, Samsung Pay, Android Pay, "MasterPass", and "Visa Checkout", that is, those operators that have formal relationships with the retail banks and MasterCard/Visa, will soon enough throttle the flow of oxygen to a great deal of the clunky PayPal's parasitic operations.

PayPal users should never give PayPal an authority to direct debit their bank accounts; PayPal should only ever be given access to funds via a real-bank credit card account; that way your credit card-issuing bank will be the final arbiter of any transaction dispute; similarly, sellers should never accept payment via PayPal for goods that are going to be picked up by the buyer; PayPal offers sellers zero protection from scammers in such circumstances.

PayPal's one-time adoptive parent, eBay, is likely the most unscrupulous commercial entity operating on this planet; but, have no fear, eBay is an equal-opportunity fraudster; demonstrably, they will knowingly aid and abet the defrauding of buyers by unscrupulous eBay merchants who bid on their own auctions, and, conversely, of honest sellers by unscrupulous buyers—as long as there is a financial benefit in such fraud for eBay.

And if anyone thinks that the clunky "PreyPal" is any more scrupulous—given their equally poor customer service and lack of any mediation of transaction disputes by human beings which effectively results in a hard-wired bias towards buyers/payers that they now necessarily have to pander to—good luck to all you small online merchants who may get burned in the process ...

In the meantime, Pierre Omidyar can only dream about how much more fabulously wealthier he might have been had he not given the cretinous Johnny Ho the key to the eBay corner office; yet, incomprehensibly, he has allowed this headless turkey to now occupy the seat at the head of the boardroom table at "PreyPal."—LOL!

eBay's auction format has been atrophying ever since 2008 when the cretinous Johnny Ho further anonymized bidder IDs to better hide, and further aid and abet, demonstrably rampant shill bidding fraud on consumers by unscrupulous sellers. As time has passed, fewer and fewer people remain naïve enough to still believe that, contrary to its claims, eBay has ever had any intention of protecting consumers from such rampant auction fraud—from which eBay profits. And, eBay raised their take on final value fee to 10% a few years ago and removed tiers that would reduce the amount on higher value items. And so, eBay as a whole has likewise, and deservedly, continued to atrophy.

In early January eBay invited consumers to auction their unwanted Xmas gifts on eBay. And, if you didn't know what your unwanted gift may be worth, eBay's advice was to start the auction at 99c and watch the fun—as your item likely sold for 99c—always presuming you weren't bidding on the auction yourself (and assuming that you or anyone else was able to find the listing in eBay's manipulated search), in which case you would likely finish up buying it yourself; but that's OK with eBay too; they don't mind whether the sale is real or faux, as long as they get their final valuation fee.

The eBay executive suite—where the incompetent mingle with the disingenuous, the unscrupulous, the malevolent and the outright criminal, and the just plain stupid …

The ugly reality of eBay’s calculated, demonstrable, facilitation of endemic shill bidding fraud on consumers on its auctions marketplace—Google "Shill Bidding on eBay: Case Study #5"
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