225Research

225Research strives to find strong investment opportunities and aims to provide in-depth and insightful analysis of these opportunities for our readers.

Whats Got us Talking

eBay- Time to put a Buy Listing?

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Was eBay’s Thursday stock dive justified? Or was it just irrational selling?

 

 eBay dropped over 10% on Thursday, after announcing an earnings beat, albeit with weak revenues, guidance, and unforeseen difficulties with StubHub, eBay’s ticket selling business. We think this large drop is overdone, as guidance on revenue was only adjusted from around 11 B, to around 10.8 B. eBay’s revenue miss as well was only by 50 million, with 10 B in revenues instead of 10.05B. Yes, it dropped over 10% partially because of a guidance miss of less than 30 million and a revenue miss of 50 million. Seems a bit much don’t you think? Would Netflix and Amazon bulls agree? This is a company trading at 15x next year’s earnings, while a company like Netflix trades at over 100x earnings, yet doesn’t fall as much on their own weak quarter. The fundamentals are not changed enough to warrant this GE like free fall, and we will tell you why.

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   eBay isn’t a story entirely without growth either. They fit the future of retail, which is online, with their marketplace, as well as peer to peer selling that is unmatched. With earnings growth projected around 10% a year, you’re paying a fair valuation for a company like this. 15x earnings is less than the s&p 500 is trading at currently. If you believe that earnings will grow at 10% per year, keeping this fairly low multiple would have it gaining around 10% a year, which would be a solid return for a fairly stable company.

 

    eBay has the available cash flow to maybe one day introduce a dividend, but for now they’re sticking with buybacks as their way to return cash to shareholders. This is a stable business with key areas of stability (ticket sales on StubHub, peer to peer selling) with major areas of growth for the future (eBay’s marketplace). eBay offers investors a good “bang for their buck”, especially in the overvalued tech sector. eBay fits the bill as a company that can be a third or forth fiddle to Amazon, and compete with the likes of Shopify and Etsy in a growing e-commerce trend that is, and will be the way of the future.