Global e-commerce leader eBay Inc. (EBAY) operates marketplace platforms that connect buyers and sellers worldwide. The company’s marketplace platform includes its online marketplace at ebay.com and the eBay suite of mobile apps.
Despite supply chain issues that plagued the market over the past year and other macroeconomic headwinds, the company managed to grow its revenues. The company also benefits from not carrying an inventory of its own and so does not face supply shortages or shipping expenses.
For a company such as EBAY that attracts willing and interested buyers, businesses see it as a strategic advertising platform. EBAY’s first-party advertising products delivered $285 million in revenue in the first quarter, with the total advertising offerings generating over $317 million in revenue.
However, the growth of e-commerce is slowing down. The sales growth of retail e-commerce is projected to increase by 8.9% this year, which is a significant decrease compared to the double-digit growth rates of 2020 and 2021.
According to a survey, e-commerce sales were down 1.2% last month on a year-over-year basis and 1.8% off for the first six months of this year compared to the first half of 2022.
Moreover, retail sales fell 1% year-over-year last month as rising interest rates bit into consumers’ budgets. Sales could remain under pressure as rates are expected to go up again in August.
EBAY’s stock has gained 12.8% over the past month and 26.5% over the past nine months to close its last trading session at $48.94.
Here are some factors that could influence EBAY’s performance in the upcoming months
Mixed Financials
EBAY’s total revenue for the fiscal first quarter ended March 31, 2023, increased 1.1% year-over-year to $2.51 billion. The company’s gross profit increased marginally year-over-year to $1.81 billion. Its non-GAAP EPS came in at $1.11, representing a 5.7% increase from the year-ago quarter.
However, EBAY’s non-GAAP operating income declined 7.6% year-over-year to $744 million, while its non-GAAP net income from continuing operations declined 4% year-over-year to $600 million.
Solid Historical Growth
EBAY’s EBIT grew at a CAGR of 8.2% over the past three years. Its revenue grew at a CAGR of 6.9% over the same time period. Its EBITDA grew at a CAGR of 4.1% over the past three years.
High Profitability
In terms of the trailing-12-month levered FCF margin, EBAY’s 18.44% is 398.5% higher than the 3.70% industry average. Its 28.22% trailing-12-month EBITDA margin is 159% higher than the 10.90% industry average. Likewise, its 72.60% trailing-12-month gross profit margin is 105.9% higher than the industry average of 35.25%.
Stretched Valuations
In terms of forward Price/Book, EBAY’s 5.00x is 89.1% higher than the 2.64x industry average. Likewise, its 2.70x forward EV/Sales is 128.8% higher than the 1.18x industry average.
POWR Ratings Reflect Uncertainty
EBAY has an overall C rating, equating to a Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. It also has a B grade for Growth, consistent with its solid historical growth.
However, it has a C grade for Stability, in sync with its 1.36 beta.
Within the Internet industry, it is ranked #13 of 58 stocks. Click here to access the additional ratings of EBAY for Momentum, Value, Quality, and Sentiment.
Bottom Line
Amid the current macroeconomic uncertainties and rising interest rate environment, e-commerce sales are slowing, and I think it could be wise to wait for a better entry point in EBAY.
Stocks to Consider Instead of eBay Inc. (EBAY)
While EBAY has an overall POWR Ratings grade of C, equating to a Neutral rating, one may also want to consider these other stocks within the Internet industry with an A (Strong Buy) or B (Buy) rating: Yelp Inc. (YELP), CarGurus, Inc. (CARG), and Expedia Group Inc. (EXPE).
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EBAY shares were trading at $48.34 per share on Tuesday afternoon, down $0.60 (-1.23%). Year-to-date, EBAY has gained 17.90%, versus a 20.00% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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