It’s been a wild roller-coaster ride for eBay (NASDAQ:EBAY) over the past two years. After reaching a high of $46.99 early last year, the eBay stock price is currently at January 2017 levels.
Over the past 12 months, EBAY is down almost 25%, whereas S&P 500 is down about 7%. As Wall Street debates what is next for EBAY shares, I am of the cautiously optimistic bull camp.
Here is why…
eBay Still Is a Powerhouse
In Q3 2018, the eBay platform had 177 million active users in 190 countries, up from 175 million in Q2. eBay’s mobile shopping app is one of the most popular in the U.S. with an audience reach of over 30%.
Its management is looking for ways to further capitalize on the strength of these user numbers to improve the balance sheet through two key drivers, i.e., advertising and payments.
The company is fast growing its Promoted Listings (revenues paid for by sellers). It now represents a third of eBay’s total advertising revenue.
eBay aims to control the checkout process better and reach out to more sellers and buyers alike. It is also banking on Adyen providing a cheaper payments platform than PayPal and that most sellers will realize cost savings in the payments processing.
Could eBay Sell Subsidiaries?
Over the past two decades, the company has made more than 50 acquisitions. Now eBay operates via a plethora of U.S. and international subsidiaries.
The company has a P/E ratio of 13, historically a low number. At the current valuation levels, several activist investors may be interested in the company, for example, to buy a large stake in it or to force it to sell some of its businesses like StubHub, its ticket marketplace. After all activist investors had showed an interest in eBay before.
In 2015, it formally spun off PayPal. In 2017, it sold its Indian ecommerce company to Flipkart (Walmart (NYSE:WMT) later bought a majority stake in Flipkart). This year might witness more sales by eBay as it unloads a few of its holdings and put the cash to better use for revenue generation. Another sale could help propel the eBay’s share price up fast.
Shorter-term Technical Analysis
After this year’s selloff, eBay stock has suffered from a damaging technical picture. However, the past few weeks have seen the chart and the indicators start stabilizing.
Any future weakness toward the mid-$20’s level could represent a buying opportunity for long-term investors in eBay. In the coming months, the first target would be $32.5 and then $37.5.
EBAY stock warrants a “slowly accumulate” at its current levels, and over the longer-term, it represents a good buying opportunity.
What Could Derail EBAY Stock?
The main issue I find with eBay is its current lack of focus in the highly competitive world of online sales. In 1995, the company started as an auction marketplace — mainly for lower-priced used goods; but now selling via buy now option has become as common as the auctions.
In other words, many individuals would probably not be able to differentiate eBay from Amazon (NASDAQ:AMZN). Amazon has recently cut its fees for sellers especially on cheaper items, and eBay sellers have noticed the potential savings as well as the power of Amazon’s platform.
The competition also has meant lower margins and a flat bottom line, contributing to the share price decline in 2018. eBay’s struggle to re-invent itself with a niche offering may further hamper the earnings.
The Bottom Line on eBay Stock
If you are willing to stay in EBAY stock 3-4 years, you are likely to find value in the stock.
I trust that the management will work through the main issues surrounding the focus of the company as well as the competitive environment and the stock will reward patient investors handsomely.
eBay may also find itself in the middle of a bidding war for various parts of its business.
As of this writing, Tezcan Gecgil has no positions in any securities mentioned.