Just over a month ago, eBay (NASDAQ:EBAY) was thrust into yet another major transition. CEO Devin Wenig announced Sept. 25 that he was stepping down amid differences with the board. As this transition unfolds, the company will look to sell more assets, leaving it with its core online auctions and e-commerce business.
However, after years of losing ground to other players, many wonder if the company can save itself.
Still, with the online auctions industry growing at a respectable rate, EBAY stock should generate some degree of growth despite changing conditions.
Losing Ground
EBAY stock was a darling of the 1990’s tech boom. It built an iconic brand based around its online auctions. Founder Pierre Omidyar became a billionaire the day the company launched its IPO, and the stock was among the most revered equities during that decade.
However, its performance after the boom has brought little reason to celebrate. Its core auctions and e-commerce business has taken an obvious backseat to Amazon (NASDAQ:AMZN). Moreover, resellers have not responded well to the fee structure eBay imposes, leaving little incentive to choose it over the online retail giant. According to Inc.com, eBay’s share of the e-commerce and online auctions market stands at just 0.8%.
Also, due to the spinoff of the aforementioned ventures, it has not become a conglomerate like today’s Amazon. The company acquired PayPal (NASDAQ:PYPL) in 2002 only to spin it out in 2015. StubHub is met with the same fate as the company seeks a buyer.
Moreover, gross merchandising volume for eBay fell almost 5%, the worst performance in several quarters. Interim CEO Scott Schenkel blamed this on the recently implemented internet sales tax. This requires the company to collect sales taxes on behalf of some out-of-state sellers. This adds cost to doing business on eBay. However, it adds costs to everyone else too. Hence, it should become less relevant as the e-commerce industry adapts.
Global Online Auctions Growth
Despite these signs of continued struggle, eBay stock bulls have one key sign for hope. Orbis Research predicts that the global online auction market will grow at a compound annual growth rate of 7.2%. This bodes well for eBay stock as its name recognition remains high.
Moreover, profit forecasts for eBay stock reflect this growth. After average earnings declines over the last five years, analysts expect profits to increase by 19.4% this year. Though they forecast only 5.8% earnings growth in fiscal 2020, Wall Street believes profit growth will return to the double-digits on average.
Also, investors can buy this growth cheaply. At the current EBAY stock price of around $35 per share, the forward price-to-earnings ratio stands at just 12.1. With average annual profit growth reaching the double digits, I cannot argue against a mild bull case for eBay stock.
No, I do not see the kind of outsized multiples that have benefitted Amazon. Nor should investors expect its dot-com valuation or notoriety to come back. However, it enjoys high name recognition in a niche that still drives respectable CAGR growth. At current levels, I see a trade short term and modest gains over a longer time horizon.
My Final Thoughts on eBay Stock
Despite struggles in the e-commerce industry, eBay stock should continue a pattern of modest growth. Without question, the company has lost much of its prestige it gained in the dot-com boom. It has also struggled to expand its offerings through acquisition. This leaves it primarily an auction and e-commerce business, where it has declined relative to competitors in recent years.
However, analysts expect the online auctions business to grow at a 7% rate. They also predict average earnings increases in the low double-digits. This and a low P/E ratio should make eBay stock a profitable trade. Longer term, investors probably will not own the highest-growth name in e-commerce, but they will see growth nonetheless.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.
