eBay Inc. (NASDAQ: eBay) is currently priced at $35.77, with the stock’s 52-week high at $36.02. The 52-week low is $20.30.
It is clear that eBay is on the upswing. Yet, this does not mean you should add the stock to your portfolio. Take a look at the stock with a long-term perspective, and you will find it has generally stagnated since falling off a cliff in 2015.
Let’s examine eBay’s business, analyze the stock and determine whether or not it is worth buying.
eBay Background
eBay is an online auction provider and e-tailer. The company was launched back in 1995, and received plenty of attention during the infamous dot-com bubble, and wholly owned the online money transfer company PayPal until 2015.
Nowadays, eBay is a multinational corporation that generates multiple billions of dollars through operations in 30 countries. Customers and businesses use the online service to buy and sell products of all varieties, whether it is video games, books, antiques or even large scale items like automobiles and homes.
Aside from online auctions, eBay offers “Buy It Now” shopping, online classified ads, event ticket trading and a handful of auxiliary services. The appeal of buying on eBay is that there is no fee. Sellers pay a portion of their item’s list and sale price to eBay.
eBay’s Excellent First Quarter 2017 Results
eBay had an impressive first quarter to start the year as revenue eclipsed $2.2 billion – growing 3.7 percent on a year-over-year basis. Adjusted net income from continuing operations decreased 2.2 percent on a year-over-year basis, falling from $550 million to $538 million.
Adjusted earnings per share increased slightly more than four percent, moving from 47 cents to 49 cents. The company added two million active buyers since the previous quarter. All in all, 169 million active buyers use the popular online auction website.
Marketplace gross merchandise volume rose two percent on a year-over-year basis, reaching $20 billion. The growth stems from the increase in active buyers along with eBay’s brand advertising campaigns. It is worth mentioning that eBay’s classifieds revenue also increased by a healthy seven percent to just under $200 million. Operating cash flow from continuing operations equaled $582 million while free cash flow came in at $447 million.
The financials certainly show that eBay is in good shape. However, this is not an indication the online auction giant will continue to grow and innovate across posterity.
Is eBay Overvalued?
eBay’s sterling first quarter performance is tempered by the fact that the internal estimate for full-year 2017 adjusted earnings per share is a mere $1.98. The consensus estimate from Wall Street analysts was a minimum of $2.03. eBay stock has jumped about 35 percent over the past year. The stock is up 15 percent in 2017 alone. Yet, plenty of industry insiders argue eBay’s reporting of numerous “one-time” items skewed recent financial results.
In fact, eBay earnings included an incredible $5.58 billion of one-time items across the trailing 12-months. This financial nuance skews earnings as well as eBay’s price-to-earnings ratio (P/E). At the moment, eBay’s P/E ratio stands at 5.11. This is quite low compared to the online auctioneer’s usual P/E level. Beta is 1.6, meaning eBay is volatile compared to the rest of the market.
The company is trading at about 27 times its regular earnings-per-share for the trailing 12 months. This is concerning as eBay is a mature tech company, not an up-and-coming brand with ample room to grow.
The Bottom Line
Do not let eBay’s artificially low P/E ratio and inflated earnings tempt you to buy the stock. The vast majority of online shoppers do not turn to eBay for purchases. Though eBay is certainly appealing to prospective buyers, the unfortunate truth is that every item sold on the website can be returned to the seller for a full refund without exception.
Furthermore, the seller pays a portion of his item’s list price even if it does not sell. This is an inherently flawed business model that will inevitably prove quite unsettling to sellers over the long haul.
Add in the fact that eBay will likely continue to lose market share to e-commerce superstar Amazon.com, and it becomes awfully difficult to be bullish. If you own eBay, consider selling now while the stock is hovering around its 52-week high. If you have been watching the company from the sidelines, look for a better opportunity.
Regards,
Ethan Warrick
Editor
Wealth Authority
