- No other e-commerce company has done more SEO work in the last 12 months on their listings than eBay. Sales could easily spike if Google altered its algorithm once more.
- By limiting deal categories, the company will be able to compete better with Amazon in certain markets.
- With a current p/e ratio of under 15, value investors would enter in droves if the stock dropped.
Everyone thought that eBay (NASDAQ:EBAY) share price would jump off a cliff after its separation from Paypal Holdings (NASDAQ:PYPL), but things didn't go according to script. The e-commerce giant reported a slight EPS beat (revenues were in-line) in its third quarter results. The subsequent 9%+ rally in the eBay stock price was a result of the company raising its earnings guidance for the full year. Definitely not what the street expected.
The eBay stock has rallied 19% (see chart below) since the 21st of October which really would have caught short sellers who shorted this stock going into earnings. Short interest on eBay shares were up almost 10% going into earnings. But the jury is still out on whether the company's post earnings rally is for real or will it die a death. Whereas many analysts are still taking a bearish view on eBay stock, I for one believe the stock will remain elevated for a variety of reasons.
The prime reason why the bears don't believe in eBay long term is because of its GMV growth in the US, which was up just 3%. Furthermore there was negative growth in items sold (7%) which was down from 9% (trailing 12 month average). The logical conclusion here is that companies like Amazon (NASDAQ:AMZN) are slowly taking away market share from eBay and this very well may be the case at the moment but the trend may not continue long term. I just think eBay has too many things going for it, which is why I believe the stock will, at the very least, remain elevated if not rally a touch from here.
eBay's SEO Efforts To Increase Organic Traffic
Firstly investors should remember the trials and tribulations the company had last year with respect to the data breach and the algorithm change by Alphabet Inc-C (NASDAQ:GOOG). These two events really set back the company a long way. But emerging signs are that many previous users have returned, as seller engagement levels are on the up.
This is as a result of the huge work eBay has put in regarding the uniqueness of its listings. The slap from google last year was a result of huge amounts of duplicated content. eBay is definitely making strides in the area of search engine optimization (SEO) and sellers should become better compensated as a result. The initiatives include the introduction of product identifiers for listings in certain categories. eBay believes this initiative will increase organic traffic over time which should see sellers making more money.
Secondly the company is committed to improving the compatibility of its mobile listings which is where the real growth is in e-commerce. The more streamlined and compatible the listing, the more possibility of a sale taking place. Whats the takeaway here? Well sellers are going to migrate where they are best rewarded. If the above initiatives can gain traction along with the current roll out of "Seller Hub", even more seller will come back onto the platform. I just think the hard work this company has done in the last 12 to 18 months regarding its SEO efforts will continue to bear fruit which will benefit sellers and shareholders alike.
The above mentioned initiatives saw eBay's user base grow from 14% in fiscal 2013 to 21% in fiscal 2014 (see chart below). What investors need to remember here is that the global e-commerce market is expected to grow at a CAGR (compound annual growth rate) of 17 meaning the whole market will more or less double to $2.5 trillion (from $1.3 trillion in 2014) by 2018.
We can see that eBay's user base is growing and whether it is exclusively coming from its own in-house efforts or the underlying e-commerce growth curve is irrelevant. What is relevant is that more and more customers are jumping online and any online retailer that has significant presence should do very well from the continuing trend.
Limited Deal Categories
Also eBay decided recently to limit its deal categories and focus more on certain customers in order to grow its market share going forward. I believe this to be a good strategy considering eBay's large competitors such as Amazon (NASDAQ:AMZN) and Alibaba (NYSE:BABA) sell a wide variety of products.(Amazon sells over 200 million products alone in the US).
By focusing on certain niches, eBay can definitely gain market share because it wont have to spread its resources across all of its platform. In the offline world for example, Costco (NASDAQ:COST) has had success implementing this strategy and as a result has taken sizable market share from its competitors. Costco only stocks around 3,500 products which gives the company better buying power and also provides certainty for its customers. It's the same with eBay.
Amazon may be growing far faster on a company wide basis but this will open up opportunities for e-commerce companies who sell in focused niche markets - markets where the big guys may be overlooking at the present time. Furthermore investors shouldn't forget that the huge success of Amazon's third party selling division demonstrates the continuing growth curve of e-commerce. If eBay can get its act together with certain deal categories, third party sellers from other websites will be quick to jump ship.
To sum up, I believe eBay stock will stay elevated because of its relentless SEO efforts and the continuing growth in e-commerce. Furthermore the company wants to create better specific markets which will attract sellers especially when its same day delivery program comes on stream (Ebay+).
Moreover the stock currently has a p/e ratio of just under 15 which seems cheap for an established company that is still growing its buyer base (159 million in Q3-2015 - 5% year on year increase). This makes me believe that even if eBay failed to grow meaningfully from here, value investors would undoubtedly be attracted to the eBay stock, as an acquisition from one of the big companies (such as Alibaba) would be a likely possibility.