As It Adds a Dividend, eBay Stock Might Be Worth Another Look

Dividend potential is making people rethink eBay stock

Even the best tech stocks eventually succumb to the problem of slowing growth. And while many of tech’s elder statesmen can reinvent themselves, others firmly move out of the “growth” category and into the “value” slot. That’s exactly what could be happening at online marketplace eBay (NASDAQ:EBAY). Since adding a dividend eBay stock has gotten a lot more interesting.

There’s no denying that since kicking-out PayPal (NASDAQ:PYPL) as separate stock, eBay has seen its once-torrid rate of revenue generation slow to a crawl.

In that decelerating pace, many investors (mainly big activist shops) have gotten pretty impatient with the stock and its management. To appease investors, eBay decided to pay its first dividend in 24 years and up its buyback program significantly.

The question for investors today, now that eBay is dividend stock is worthy of your time? Is slow and steady growth worth the 1.65% yield?

eBay Stock and Slowing Growth

The last five years or so haven’t exactly been going eBay’s way. Despite investors love affair with tech stocks and the fact that online/ecommerce has seen tremendous growth, the online marketplace has significantly underperformed many of its tech peers- both old school and new.

Part of underperformance continues to be the exodus of buyers/sellers on the site. Originally, the auction site was a place to find unique finds. However, today, its mostly professional sellers unloading odd-lots of name branded merchandise.

Online shoppers are simply choosing Amazon (NASDAQ:AMZN) when it comes to online shopping. Ironically, AMZN has its own marketplace for third-party sellers integrated into its core website.

So, on one hand, fewer people seem to be using eBay. The other cause for concern was perhaps self-induced.

The crown jewel in eBay’s fortune was PayPal. After the site purchased the online payment gateway shortly after it’s IPO, PYPL quickly became a giant in online payments and became one of the industries leaders.

The problem for eBay was that PayPal clearly was running the show and was perhaps too successful. Activist investors thought that the traditional marketplace business was slowing down the quicker moving payments side and forced eBay to spin-off the stock. Given the returns and growth that PYPL has seen, this was the right decision.

The problem is that now eBay proper is hurting on the growth side.

The firm’s recently reported numbers underscore this fact. For the whole of 2018, eBay managed to see total revenues grow by 6%. That’s not too shabby until you look at the trends in place.

Initially, management pegged full-year growth to come in closer to 9%. Moreover, the full year jump was below 2017’s 7% revenue increase and below 2016 numbers as well. It should be noted that 2016 was the first full year without PayPal helping the firm’s numbers.

Other metrics have begun to trend lower as well. For example, eBay’s pool of active buyers showed just 4% last year. That’s again lower than the increases seen in 2017. Meanwhile, sales volumes have been flat for the third consecutive quarter, and when just looking at strictly the U.S., volumes actually fell.

eBay Hands out the Cash

So, it’s no wonder why Paul Singer’s Elliott Management and Starboard Value LP have taken big stakes in eBay. Both have been pushing for changes at the company including a spinout of its StubHub ticket marketplace and a potential sale/spinout of its advertising segment, both of which are seeing some decent growth compared to the traditional marketplace business.

To appease the activists, eBay opened up its wallet in a big way. The firm is planning on returning $5.5 billion to shareholders in 2019 and another $1.5 billion in 2020. This includes a new upsized $4 billion buyback program and initiating a dividend of 14 cents per share.

At current prices, that gives eBay a yield of around 1.59%. That provides eBay with one of the highest initial yields when looking at old dot-com era tech.

eBay Is a Big Maybe

With the new dividend payment, eBay is clearly courting a different class of investor. And that’s not necessarily a bad thing. Old tech stock Cisco (NASDAQ:CSCO) is now a dividend-seeker’s dream with its payout history. The question is, whether dividend/income seekers are willing to give eBay a similar go.

There are positives with the eBay story. The firm is still one of the largest online retailers in the world. The company pegs that it has around 179 million active users and features over 1.9 billion listings on its site at any one time.

The best part is that eBay does have some pretty high margins and cash flows when it comes to people actually making a purchase on the site. It’s just not as many people are clicking buy any more, with the stock guiding for revenue growth of just 1% to 3% this year.

That’s basically utility speed. But you can pay a lot of dividends and buybacks with that sort of slow/steady growth.

The problem is whether or not the declines will keep coming. eBay faces plenty of serious competition from Amazon, Etsy (NASDAQ:ETSY) and even Google’s (NASDAQ:GOOG) marketplace. If that competition keeps eroding eBay’s numbers, then no dividend is going to save the stock.

So, is eBay stock a buy? Well, maybe. Perhaps, the best course of action would to place it on a watchlist and see the next quarter or two, focus on its declines. If they keep coming, the stock is a hard pass. But, if it stabilizes, investors may just have the next big tech dividend on their hands. All in all, eBay is wait and see.

Disclosure: At the time of writing, Aaron Levitt did not hold a position in any stock mentioned.


Article printed from InvestorPlace Media, https://investorplace.com/2019/02/as-it-adds-a-dividend-ebay-stock-might-be-worth-another-look-nimg/.

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