Should I Buy EBAY Stock? 3 Pros, 3 Cons

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Over the years, Apple (AAPL) has crushed many competitors like BlackBerry (BBRY) and Nokia (NOK). So with the iPhone 6 Plus and Apple Watch just announced, who is most at risk?

eBay ebay stockActually, the biggest disruptor isn’t a device, but Apple’s new payments system. Apple Pay is a huge threat to eBay (EBAY), which has been riding the success of PayPal for years. Since the announcement, EBAY stock has dropped about 3.7% — and the damage was worse before a mild recovery on Friday.

But the Apple news isn’t the only thing eBay investors have to worry about. A massive data breach and a proxy fight from billionaire investor Carl Icahn have been weighing heavily on EBAY stock.

True, all the commotion is scary for EBAY investors. But will eBay’s woes continue, or has EBAY stock simply been dropped to better values?

Here’s a look at the pros and cons for EBAY stock:

EBAY Stock Pros

Global ecommerce platform: Ebay has a diverse set of businesses, all with strong leadership positions. They include:

  • eBay Marketplace: This is where 149 million active members go to buy and sell goods. The marketplace currently has more than 700 million items listed.
  • PayPal: This is a massive online/mobile payments system, which has more than 149 million active registered users.
  • eBay Enterprise: This business helps companies with their ecommerce efforts, such as transaction processing and marketing.

eBay also continues to find ways to get synergies from these assets. A recent example is a program to lend up to $1 million per day to small merchants. The company has leveraged the Big Data analysis from its marketplaces to help fuel the effort.

Mobile: No doubt, this is the future of ecommerce. The good news is that eBay has made substantial investments in apps, helping drive 260 million downloads. But there have also been savvy acquisitions, such as Braintree (the company is a top player in helping companies sell their goods via mobile devices). The core mobile business continues to run on all cylinders: In the second quarter, eBay attracted 6.6 million new users.

Financials: eBay remains a highly profitable business, regardless of the recent setbacks. The main reason is that marketplaces require minimal capital expenditures. There is also meager competition because it is difficult for rivals to get an edge. As a result, eBay continues to crank out lucrative cash flows. In the latest quarter, free cash flows came to a hefty $1.2 billion, and EBAY stock is backed up by $7 billion in cash and short-term investments.

EBAY Stock Cons

Security: More and more businesses are being hit — and hurt — by cyberattacks. Just ask Target (TGT) and Home Depot (HD). And eBay has been just as unfortunate. Because of a data breach, the company has required 150 million users to reset their passwords. Unfortunately, this adds tremendous frustration and could lead to declining sales.

Ecommerce competition: Alibaba will soon pull off the largest IPO in history. True, the company will continue to focus on its core market in China, but Alibaba will also have a large amount of resources to attack the U.S. market, which could put pressure on eBay. But mega U.S. operators also pose serious competition. Google (GOOG) has been getting more aggressive with ecommerce, and Facebook (FB) is developing into a significant threat. Its WhatsApp platform could ultimately be a platform for ecommerce transactions, similar to what Tencent (TCEHY) has done with WeChat in China.

Apple Pay: Granted, Apple has had its share of flops. But with Apple Pay, the company does have some big advantages. Because it controls the hardware for the iPhones, it can implement a super simple process to make payments (a tap while holding the Home button, which allows for fingerprint recognition). The company also has more than 800 million credit cards on file through its iTunes business. But Apple also has the heft to get retailers on board, which already include biggies like Macy’s (M) and Target. The company has also struck agreements with Visa (V), MasterCard (MA) and American Express (AXP). It will take time for Apple Pay to get a foothold. But it seems inevitable that PayPal will ultimately feel some pain.

Verdict on EBAY Stock

For investors in EBAY stock, there are definitely many positives. The company has a full-on ecommerce platform and is poised to benefit from the mobile megatrend. The cash flows remain high and there are nice opportunities from new businesses, such as the merchant loan program.

But there are still some nagging issues. The impact of the data breach could prove to be a big problem for the Christmas season and, yes, Apple’s new payments system could eat into PayPal’s business. Keep in mind that PayPal has been the main source of growth for eBay.

If anything, the Apple threat could be the biggest risk factor, especially given the company’s history of taking over existing markets. It’s especially notable that the company did not name PayPal as a partner.

OK, so should you buy EBAY stock? No — for now, it’s probably best to look elsewhere.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.


Article printed from InvestorPlace Media, https://investorplace.com/2014/09/ebay-stock-pros-cons/.

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