On Tuesday, Wolfe Research initiated coverage on eBay (NASDAQ:EBAY) with a Peerperform rating, casting doubts on the company's potential for significant topline growth. The firm's analysis suggests that eBay's enthusiast buyer growth and gross merchandise volume (GMV) per enthusiast buyer have remained stable for multiple quarters, with limited prospects for increased purchase frequency or growth among these buyers.
Wolfe Research pointed out that while eBay's margin profile is fundamentally appealing, there are no expectations for notable margin expansion in the near to mid-term. This is attributed to low single-digit percentage topline growth and continued investments in the platform aimed at sustaining and potentially boosting growth.
The firm has set a fair value (FV) range for eBay's shares between $44 and $65. This valuation is based on a blend of price-to-earnings (P/E) multiples ranging from 10x to 12x for the fiscal year 2025 estimates (FY25E), which is a discount to the comparison group's median of 27.1x. This discount is justified by eBay's topline growth profile. Furthermore, the valuation includes a range of free cash flow (FCF) yields from 9.5% to 8.0%.
In comparison to historical data, eBay shares are currently trading at 7.9x FY25 EBITDA and 10.7x projected FY25 price-to-earnings (PF EPS), against a 5-year historical median of 8.4x and 11.6x, respectively. Wolfe Research's assessment indicates a balanced valuation when adjusted for growth, with no immediate catalysts for significant changes in the stock's performance.
In other recent news, eBay has launched a new financing product, Business Cash Advance, in partnership with Liberis, offering up to $1 million in working capital to U.S. sellers. This initiative is part of eBay's ongoing efforts to empower its sellers, with the e-commerce platform facilitating over $73 billion in gross merchandise volume in 2023.
eBay has also garnered attention for selling a significant stake in Adevinta ASA for approximately $2.4 billion, with the proceeds expected to fuel various corporate activities.
Financial firms Piper Sandler, Citi, Baird, and Truist Securities have expressed positive outlooks on eBay's growth trajectory. Piper Sandler reaffirmed its Overweight rating on eBay's stock, while Citi upgraded eBay's stock to a Buy rating due to anticipated margin expansion and share buybacks. Baird and Truist Securities have also upgraded their ratings or raised their price targets for eBay.
In addition to these developments, eBay has announced a partnership with Japan's Rakuten Group to explore the U.S. market's interest in pre-owned Japanese fashion items. The company also plans to incorporate PayPal (NASDAQ:PYPL)'s digital wallet, Venmo, as a payment method on its platform. However, eBay has also announced a workforce reduction of around 9%.
These recent developments highlight eBay's efforts to streamline operations and optimize its financial structure.
InvestingPro Insights
As Wolfe Research provides a cautious outlook on eBay's growth and margin prospects, it's worth considering additional insights from InvestingPro. Notably, eBay has demonstrated a commitment to shareholder returns, with a track record of raising its dividend for the last five consecutive years, which could be appealing for income-focused investors. Additionally, the company's impressive gross profit margins, which stood at 72.11% over the last twelve months as of Q1 2023, underscore its ability to maintain profitability.
InvestingPro data reveals eBay's market capitalization at $27.21 billion, with a P/E ratio of 10.76 and a forward P/E (adjusted for the last twelve months as of Q1 2023) of 16.75. These metrics, combined with a Price / Book ratio of 4.34, paint a picture of eBay as a potentially undervalued company, especially when considering its large price uptick of 33.37% over the last six months. The company's stock is trading near its 52-week high, at 97.07% of this peak value, which could indicate strong investor confidence.
For those seeking more comprehensive analysis, InvestingPro offers additional tips on eBay, including insights on the company's share buyback strategy, liquidity, debt levels, and analyst profitability predictions. Readers interested in deeper analysis can use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, unlocking access to a total of 11 InvestingPro Tips for eBay at https://www.investing.com/pro/EBAY.
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