eBay’s stock has experienced a notable 50% decline from its all-time high in 2021, raising questions about the wisdom of investing in the e-commerce platform ahead of the holidays. Despite the concerns, there are reasons to consider eBay a long-term investment option, especially given its strong fundamentals and innovative strategies.
Bright and dark in the third quarter
In the third quarter, eBay reported mixed results with earnings per share that beat expectations, but revenue that aligned with forecasts. Although eBay’s advertising platform experienced an impressive 39% growth, active buyers declined 3% and operating margins declined to 26.4%.
In addition, the outlook for the holiday season is disappointing due to lower-than-expected consumer spending, especially in non-U.S. regions. However, eBay is responding to these challenges with innovation, introducing its artificial intelligence-based Magic Ads tool, which simplifies the selling process and improves the user experience.
eBay versus competition
Currently, eBay and Etsy are facing a slowdown in their share growth, reflecting changes in consumer spending patterns following the boom during the pandemic. Nevertheless, both e-commerce platforms maintain strong fundamentals and several growth avenues. The current low share price due to short-term concerns presents an opportunity for investors, but the question arises as to which option is better.
For those with a focus on growth, Etsy emerges as the preferred one, as it is expanding its sales at a faster pace than eBay, with a 7% increase in the third quarter. In addition, Etsy is showing robust growth in areas such as advertising and payment processing fees.
However, eBay leads in profit margins, converting more than 20% of its revenue into profit, compared to Etsy’s 14%. With annual free cash flow approaching $3 billion and a more attractive valuation, eBay presents itself as the strongest option for investors seeking financial stability in this volatile market.
Shareholder returns and financial strength
eBay has demonstrated its commitment to shareholders through share repurchases and dividends. In the third quarter, the company repurchased $651 million in shares and paid $132 million in dividends, delivering a 3.6% quarter-over-quarter return. Since January 2022, eBay has returned $5.9 billion to shareholders, achieving an impressive 28% yield.
With ample cash flows and the potential sale of its 50% stake in Adevinta, eBay is well-positioned to continue to generate shareholder value through buybacks and dividends.
In terms of valuation, eBay presents itself as an attractive option with a P/E of 8.2x, compared to significantly higher multiples at its competitors. While not an ideal choice for growth investors, eBay stands out as a long-term stable income stock, especially for those seeking consistent dividends and yields through buybacks. The company offers opportunities for long-term investors who value stability and consistent returns.
Is eBay stock a buy?
Despite economic uncertainties, eBay Inc. shares saw last Friday a 1.76% gain to $41.73. This positive performance aligned with a favorable day for the broader stock market, where the S&P 500 index rose 0.59% to 4,594.63 and the Dow Jones Industrial Average posted a 0.82% gain to 36,245.50. The rally marked the second consecutive day of gains for eBay.
In addition, the stock closed just $10.50 shy of its 52-week high, set at $52.23 on Feb. 2. Compared to some of its competitors, eBay outperformed on the day, as Amazon.com Inc. saw a 0.64% gain to $147.03, while Walmart Inc. had a slight 0.87% drop, closing at $154.34.
The company maintains a solid position and expects stable revenues in the fourth quarter. Analysts give eBay shares a “Hold” rating on Wall Street, with a price target implying a 10.1% upside potential. The combination of strong fundamentals, AI innovation, and an ongoing commitment to shareholders makes eBay an attractive option in a highly competitive market.
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(Information in this post is for general informational purposes only. It cannot and should not be considered as suggestions or recommendations regarding investing or financial decisions.)