Online marketplace operator eBay Inc. (EBAY) in San Jose, Calif., wants to be the marketplace for Gen-Z and millennials and is studying the possibility of adding cryptocurrencies as a means of payment. EBAY already accepts NFTs and might also embrace crypto payments soon. “We’re not accepting crypto currently,” CEO Jamie Iannone said. But “on March 10, we’re going to go deeper on all of these things, payments, advertising, our focus categories.” With gen Z as the priority, this move could help expand its customer base.
However, the company is currently grappling with waning online demand, stiff competition, and supply chain disruptions. The company had benefited from heightened online spending during the COVID-19 pandemic, but with declining infection rates and people returning to brick-and-mortar shopping, the company is seeing a decline in active users. Furthermore, the company expects its margins to be pressured as it scales its investments. EBAY’s active buyers decreased by l 9% to 147 million in its fiscal fourth quarter, while its gross merchandise volume (GMV), the value of all goods sold on the platform, fell 10.4% from last year to $20.70 billion. In addition, the company provided disappointing first-quarter guidance, which led to a sharp decline in its share price. The company expects adjusted EPS in the range of $1.01 to $1.05 and revenue of $2.43 billion to $2.48 billion; both estimates are below Wall Street’s expectations. The company’s full-year guidance also came in below expectations.
EBAY shares have slumped 28.9% in price over the past six months and 18.2% year-to-date to close yesterday’s trading session at $54.42. The stock is currently trading below its 50-day and 200-day moving averages, indicating a downtrend.
Here’s what could shape EBAY’s performance in the near term:
Mixed Financials
EBAY’s net revenues have increased 5.4% year-over-year to $2.61 billion in its fiscal fourth quarter, ended Dec. 31, 2021. However, its gross profit declined marginally from its year-ago value to $1.92 billion. Also, its income from continuing operations came in at negative $893 million, representing a substantial decline from its prior-year quarter value of $772 million. Its net income grew 133% year-over-year to $1.97 billion. But its net income per share from continuing operations declined 232.4% from its year-ago value to negative $1.47. However, its non-GAAP net income from continuing operations and net income per share from continuing operations were $647 million and $1.05, respectively, up 9.5% and 23.5% year-over-year.
Mixed Valuation
In terms of forward P/E, EBAY is currently trading at 16.51x, which is 17.8% higher than the 14.02x industry average. Also, its 3.27 forward EV/Sales ratio is 158.9% higher than the 1.26 industry average.
However, EBAY’s forward EV/EBIT is 12.2% lower than the 12.10x industry average, and its forward Price/Cash Flow is slightly lower than the 10.94x industry average.
Impressive Profit Margins
EBAY’s gross profit margin of 74.57% is 107.9% higher than the 35.87% industry average, while its EBITDA margin is 163.6% higher than the 12.60% industry average. Also, its the levered FCF margin of 32.63% is 537.7% higher than the 5.12% industry average.
Furthermore, EBAY’s 51.11% and 11.93% respective ROA and ROTC compare with the 6.11% and 7.91% industry averages.
POWR Ratings Reflect Uncertainty
EBAY has an overall C rating, which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a C grade for Value, which is consistent with its mixed valuation.
It also has a C grade for Stability. Its beta of 1.15 justifies this grade.
Among the 75 stocks in the Internet industry, EBAY is ranked #12.
Beyond what I have stated above, one can also view EBAY’s grades for Quality, Growth, Momentum, and Sentiment here.
View the top-rated stocks in the Internet industry here.
Bottom Line
EBAY is currently struggling with declining active users and has provided bleak first-quarter guidance, making investors anxious. Furthermore, the Street expects its revenues to decline 18.6% in the current quarter, 15.3% in the next quarter, and marginally in the current year. And its EPS is expected to decline 4.6% in the current quarter. Thus, given the bearish near-term sentiments, we think it could be wise to wait for a better entry point in the stock.
How Does eBay Inc. (EBAY) Stack Up Against its Peers?
While EBAY has an overall POWR Rating of C, one might want to consider looking at its industry peers, trivago N.V. (TRVG) and Travelzoo (TZOO), which has an A (Strong Buy) rating.
EBAY shares were unchanged in premarket trading Friday. Year-to-date, EBAY has declined -18.17%, versus a -8.26% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.
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