eBay: "Still Relevant" in the Digital Marketplace

09/21/2020 5:00 am EST


Richard Moroney

Editor, Dow Theory Forecasts

Remember back when eBay (EBAY) was the cool, creative auction site that introduced the first internet generation to the idea of e-commerce, recalls Rich Moroney, editor of Dow Theory Forecasts.

Of course, since then the landscape has changed and eBay seemed to fade into the background. But while you may not have visited the site in a while, eBay remains relevant in today’s electronic ecosystem.

The marketplace unit (83% of revenue, 93% of operating profit in the first six months of 2020) reflects eBay’s eponymous trading platform as well as related foreign sites and mobile apps.

While Amazon (AMZN) rules the digital marketplace when it comes to new items, eBay remains the market of choice for secondhand goods. The world’s largest online trading community, eBay has about 182 million active buyers. And those buyers were especially active in the June quarter.

In the 12 months ended June, eBay delivered per-share-profit growth of 27%. A coronavirus-powered e-commerce explosion in the June quarter drove profits up 58%.

Still, the company managed 16% growth in the previous three quarters despite lower sales. Today’s eBay focuses on niches where it doesn’t compete as directly with Amazon, such as items that are used, out of season, and often vintage or hard to find.

In addition, eBay has invested heavily in its foreign presence, seeking to gain global market share by setting up localized sites customized for each country. In the first half of 2020, eBay generated 64% of revenue outside the U.S.

CEO Jamie Iannone, who took over in April, hopes to take back some of the space eBay has lost in recent years, particularly in consumer-to-consumer sales. Admittedly, this isn’t a new idea for eBay, which has tried such initiatives with mixed success.

Iannone plans to focus on adding inventory by recruiting more sellers and improving the shopping experience. Such a strategy, combined with eBay’s focus on used goods, could keep it out of Amazon’s way.

The consensus calls for per-share profit growth of 27% this year and 11% in 2021, with sales down 1% in 2020 and up 7% next year. Profit estimates for both years have risen since the company released market-beating June-quarter results. We have added the stock to our long-term buy list.

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