Entry Price: $68.50
Target Price: $83.00
Projected Yield: 21.20%
Projected Dividend Yield: 1.10%
Time Line: 3 to 6 months
Position Size: 2.00%
eBay, Inc. is one of the world's largest online auction and ecommerce service providers. Its platform is used by 187M people from 190 countries. The company owns the eBay.com website and its counterparts in other countries. Its mission is providing everyone with an opportunity to sell goods. eBay is actually an intermediary, as the sellers pay a fee to use its services. Additionally, eBay creates and maintains online stores, as well as provides marketing and ad services.
What's the Idea?
The idea includes capitalizing on a stock that could rise with the company being restructured, multiple successful M&A deals, and entering a new niche: buying tokens.
Buy eBay Shares >>
Why Trade eBay?
Reason 1: New Services, Infrastructure Improvements, UI Updates
Over the last few months, eBay has been actively rearranging its business in order to transform the existing platform into an up-to-date ecommerce solution.
In particular, the company implemented the following changes:
- Updated website design
- Added QR codes for faster delivery
- Simplified the adding goods process
- Made the payment system more intuitive
The payment system changes are on focus, as they allowed the buyers to use most popular e-wallets, while previously, the platform only accepted debit or credit cards and PayPal. Besides, complaints and returns are now being processed within a single platform. Overall, eBay's solution became more convenient for both buyers and sellers.
eBay also brought in two new services: guaranteed identification of premium items and selling certified repaired electronics and home appliances. This is actually a way to improve the goods quality, something which the competition is not yet able to do. Thus, eBay makes the buyers feel confident that the goods they acquire are reliable, which helps gain customer trust and loyalty.
Furthermore, eBay is expanding to new niches: recently, it entered the non-fungible token (NFT) market that is trending this year, and currently allows the users to buy and sell NFT for US dollars. However, only eBay certified users can make such transactions, meaning that security and safety are of top priority here as well.
All those new features can boost both the stock price and the company value in the midterm.
Reason 2: Rearranging the Business
eBay is investing a lot of effort into restructuring its business. Last year, it already started selling some of its assets; namely, it sold StubHub at $4.05B in February 2020.
Then, in July 2020, Adevinta successfully negotiated the acquisition deal for eBay's Classifieds Group that includes such prominent ad platforms as Gumtree and Kijiji. The deal is currently valued at $12.70B. Initially, the deal also assumed that eBay would own 44% of Adevinta with 33.30% voting shares; however, as there are issues with the deal approval, eBay will have to sell a part of its Adevinta stake to an investment company named Permira, for about $2.25B, which will help eBay to get its regulatory approval. The deal is expected to get closed in Q4 2021, which will reduce eBay's share in the Norway based digital market from 44% to 34%, as agreed with Austria's regulatory authorities.
In South Korea, eBay is going to sell some parts of its business to E-Mart, Inc. Shinsegae Group and Naver at around KRW 4T, or US$3.60B, Reuters reports. Meanwhile, Euromonitor says that eBay Korea is the third South Korea's largest ecommerce company, with a market share of around 12.80% as of 2020.
With the business being restructured, eBay would be able to focus on its target business and free up additional funds to grow the company and maintain investor incentives.
Reason 3: Financial Performance
Just like last year, eBay is posting good financial results. In Q1 2021, the earnings reached $3.02B, which is 42% more than the same period last year, while Gross Merchandise Value amounted to $ 27.50B, adding 21%. The operating profit margin increased to 28% versus 26.50% last year, and the net profit excluding asset sales came at 21% versus 20%. Finally, the diluted EPS went up from from $0.57 to $0.82.
eBay's debt burden is low: the debt amounts to $7B, with $3.90B available in cash, and the Net Debt/EBITDA ratio is at 0.83x. The stable positive cash flow from operating activities amounted to $938M last quarter, while the FCF came at around $855M. Backed by such solid cash indicators, eBay is quite comfortable with supporting the investor incentives. In June 2021, eBay announced that its buy-off program would increase from $2B to $5B, which may further boost the company's value.
Currently, eBay's ratios are lower than those of the competition, namely:
- EV/EBITDA: 12.09x
- Current P/E: 17.85x
- Forward P/E: 15.14x
In early July, Piper Sandler investment bank raised eBay's projected target price to $81.
How to Use the Idea
- Buy the stock at $68.50.
- Allocate no more than 2% of your portfolio for the transaction. To build a balanced portfolio, you can use the recommendations by our analysts.
- Sell the stock when the price reaches $83.
How to Buy eBay?
If you don't have an investment account yet, open it now: this can be done online, in just 10 minutes. All you need to do is fill out a short form and verify your account.
After opening an account, you can buy shares in either of the following ways:
Freedom24 Web Platform: In the Web Terminal section, type EBAY.US (eBay ticker in the NASDAQ) in the search box, and select eBay in the results. Open a secure session in the trading window on the right, select the number of shares you want to buy, and click Buy.
Freedom24 iPhone or Android App: Go to the Price screen and tab the search icon in the top right corner. In the search dialog that will show up, type EBAY.US (eBay ticker in the NASDAQ) and select eBay in the search results. You will then see the stock in the market watch; tap it and go to the Order tab in the dialog that shows up. Specify the number of shares you want to buy and click Buy.
Buy eBay Shares >>
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