eBay Carves Out a Niche in Online Retail

12/10/2019 5:00 am EST

Focus: TECHNOLOGY

James Kelleher

Director of Research & Senior Analyst: Technology, Argus Research Corporation

eBay (EBAY) has become a more focused e-commerce retailer followings its spinoff  of PayPal (PYPL) in 2015, explains Jim Kelleher, an analyst with Argus Research — a leading source of independent research.

Going forward, it will need to show that it can successfully carve out a niche among product sellers and resellers in the face of serious competition from Amazon (AMZN) and start-up category retailers like Etsy (ETSY).

Growth in the key metrics of gross merchandise volume and active buyers has been fairly steady. 

Facing pressure from activist investors Elliott Management and Starboard Value, eBay has undertaken a strategic review of its businesses with an eye toward monetizing assets to boost shareholder returns through dividends and stock buybacks.

eBay agreed to sell its StubHub business for $4.05 billion in cash to London-based online ticket resale marketplace viagogo. eBay is likely to become an even more focused company as it sells off businesses that are not core to its Marketplace segment.

eBay shares remain attractively priced relative to peers. We use a blended valuation approach for eBay, combining historical valuation metrics and peer group comparisons.

EBAY shares currently trade at enterprise value/sales ratio of 3.1, compared to a five-year average range of 3.6-4.7. eBay's forward enterprise value/EBITDA multiple of 8.7 is 49% below the peer average, compared to an average discount of 45% over the past two years.

We are maintaining our "buy" rating on EBAY with a target price of $50. Our target implies a P/E of 16-times our 2020 EPS estimate, below the peer average multiple of 29.

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