With confirmed coronavirus cases climbing higher and some U.S. states rolling back their reopening plans, it’s becoming clearer by the day that e-commerce names such as eBay (NASDAQ:EBAY) stock will continue to be strong plays for the rest of 2020.
And if the original online marketplace really does decide to sell its classified unit as is expected — possibly as early as this month — then investors can expect to get another boost from their holdings.
While eBay may not be the sexiest e-commerce name on the market today, all signs point to its second quarter, and the second half of 2020, being just as profitable for shareholders as the first quarter.
The Coronavirus Will Weigh on the Market
Anyone still hoping that the Covid-19 pandemic will fade away is simply fooling themselves. And unfortunately, the U.S. has done a poor job compared to most other nations in controlling the spread of the virus, to put it mildly.
While Europe is opening its borders to tourists again (Americans not included), most U.S. states are seeing a surge in cases. Florida shut down beaches and ordered bars to stop selling alcohol. Texas reinstituted restrictions on large group gatherings. California imposed new restrictions on many indoor activities.
The U.S. has nearly 3 million confirmed cases with more than 132,000 deaths, and is currently seeing about 50,000 new cases per day. The number of cases per day is much higher than it was even in March, when the stock market collapsed, joblessness claims soared and many businesses were forced to shut their doors.
While brick-and-mortar retailers have been the hardest hit from the Covid-19 pandemic, e-commerce names thrived in the first quarter. Investors can expect that trend to continue now, even as cases (and the mortality rate) continue to rise.
eBay Stock by the Numbers
Remember, eBay saw a 2% drop in revenue in the first quarter on a year-over-year basis. But even with that dip, EBAY stock beat analysts’ expectations. Adjusted earnings per share was $0.77, which beat the Street estimates by $0.03 per share. Revenue was $2.37 billion, beating the $2.32 billion that Wall Street was looking for.
The company issued 2020 full-year guidance that included revenue of $9.56 billion to $9.76 billion, slightly below analysts’ expectations of $9.82 billion. But EBAY is projecting earnings per share at $3 to $3.10, which is better than consensus expectations of $2.92 per share.
For the year, eBay stock is up more than 50% and is at all-time highs near $55 per share. The only question now is how much higher eBay stock can run.
In a June 29 report, Baird Equity Research gave eBay stock an “outperform” rating and set its price target at $60, saying:
“Given broad-based momentum in online spending trends, as well as the fairly steady weekly volumes in our tracker, we believe that there is also upside potential for eBay in the second half of the year.”
Baird also revised its EPS estimate for the year from $3.33 to $3.45.
What About the Classifieds Unit?
One unknown for eBay right now is the fate of its classified section. CNBC reported that bidding for the unit could last until mid-July.
Speculation about the sale certainly has contributed to the recent run in eBay stock — up more than 5% in just the last week — as the sale will be massive. Bloomberg reported the classified business could be worth as much as $10 billion, with Prosus NV (OTCMKTS:PROSY) being heavily involved in the bidding.
Other contenders are reported to be a consortium of three buyout groups headed by private equity firm Blackstone Group, as well as Adevinta ASA, an Oslo-based e-commerce company.
The classifieds business primarily operates internationally and functions similarly to Craigslist in the U.S. Users can post items for sale on local community pages.
EBAY previously promised an update on classified before the company reports its second-quarter earnings.
The Bottom Line on eBay Stock
EBAY is an e-commerce company with a long track record. While new competitors such as Amazon (NASDAQ:AMZN), Shopify (NYSE:SHOP) and Etsy (NASDAQ:ETSY) may get a lot of attention, it’s easy to forget that eBay has been around for 25 years.
In that time, eBay managed to evolve from a consumer-to-consumer format to carve out its own space in the e-commerce field. It successfully spun PayPal (NASDAQ:PYPL) off as its own company in 2015. And made a killing by dumping StubHub for $4 billion to Geneva-based viagogo right before Covid-19 shut down the sporting event and concert business.
Selling the classifieds business is the latest piece of the company’s evolution.
EBAY has a great track record of bringing in strong earnings, and it managed to excited EPS estimates even when revenue dipped in the first quarter. With a price-earnings ratio below 10, it remains incredibly cheap compared to its peers as well.
I’m expecting eBay stock to continue to deliver strong growth numbers. It’s ranked as a strong buy in my Portfolio Grader, where it has an “A” grade right now.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
