Analysts All Love eBay Stock, But It’s Not a Buy Here

Analysts are falling all over one another these days recommending you buy eBay (NASDAQ:EBAY) stock.

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It’s a mature e-commerce company, best known perhaps for having once owned PayPal Holdings (NASDAQ:PYPL). Buying it launched the fortunes of Tesla (NASDAQ:TSLA) founder Elon Musk and others.

The company, whose name comes from its beginnings as a classifieds service in the East Bay of San Francisco a quarter century ago, has just gotten a new CEO from Walmart (NYSE:WMT).

What analysts see is a marketplace ready to take full advantage of changes emerging from the novel coronavirus. They also see an online company that’s cheap, a price-earnings ratio of 16.6, selling at just 2.8 times annual revenue.

In other words, eBay is a fixer-upper on Internet street.

Trying to Take Advantage

More important to analysts, eBay has been moving quickly to take advantage of virus-driven opportunities.

It’s waiving seller fees for new merchants on the platform through June, a program it calls “Up and Running.” The idea is that small stores forced out of business by the virus can get back into business with eBay.

It is pushing software from an eBay merchant in Australia to help stores adjust prices quickly as supply and demand shifts. The company is also trying to take back its payment platform from PayPal, with a system it calls “managed payments.”

These moves are designed to get eBay growing again, something it hasn’t been doing lately. Revenues in 2019 were almost identical to those in 2018, and profits were lower by one-third. The company’s cash balance, $2.8 billion, has been falling for years. Operating cash flow peaked in 2017.

The shares opened for trade April 14 at about $35 each, down 12% from where they were two years ago. While Amazon (NASDAQ:AMZN) has been growing like a weed, and Shopify (NYSE:SHOP)  has been making investors rich, eBay has been going nowhere fast.

What Analysts See With eBay Stock

Analysts aren’t looking in the rear-view mirror, except at eBay’s sale of StubHub last year. The all-cash deal was $4 billion for a company eBay bought for $340 million in 2007. The deal closed in February, with proceeds of $3 billion eBay said it would roll into stock buybacks.

What’s left are the classifieds and marketplace businesses, which enjoy operating margins of about 22%.

Cash, buybacks and margins are why analysts are hitting the buy button on eBay stock. Guggenheim upgraded the shares from “neutral,” saying eBay stock is selling for just 11 times its estimate for 2021 earnings. That’s even before the new management takes over and plans for payments and growth materialize.

Danger Signs

Not all is right at eBay.

Some sellers on the platform are crooks. Some sellers complain about buyers as well. The managed payments platform is still dodgy — it doesn’t support charities for instance.

The company still isn’t growing. Revenue in the fourth quarter was just 2% ahead of a year ago. Buying what eBay drops has also been a better idea than buying eBay stock. Since spinning off PayPal in July 2015 that company’s stock is up 184%, eBay stock just 28%.

The Bottom Line on eBay Stock

While eBay is talking a good game, it’s still eBay. It promises growth, but it’s not yet showing growth.

The company is due to report first-quarter earnings April 29, with net income of 73 cents per share expected, and 77 cents hoped for, on sales of $2.6 billion. That’s one-third more profit on slightly less revenue than last year.

The stock reminds me of a second-division sports team, always promising to win the pennant, never quite getting there. Maybe this time it is different — maybe this time eBay gets it right.

Maybe this year the Atlanta Falcons win the Super Bowl.

Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN.

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