eBay: Stock of the Week

‘Old’ eBay is back – and we like it.

Andrew Willis 11 March, 2024 | 4:19AM
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Key Takeaways for eBay Stock:

  • We’re increasing our fair value estimate for eBay from US$51 to US$54 as the company continues to divest non-core assets.
  • eBay’s marketplace today is a reminder of the platform in the early 2000s, with a focus on used, in-season and collectible items.
  • Mainstream competitors may take some market share for non-collectible items, but the remaining collectibles market still leaves much room to run.

If you know eBay (EBAY) owns Kijiji, then you probably know it also owns a stake in the Norwegian classifieds company, Adevinta. But whether you knew that or not, what you probably do know that its best business is the OG reseller eBay we all know, and maybe even love.

Enthusiasts and bargain hunters are the company’s bread and butter when it comes to customers, and eBay knows it. “After divesting a number of noncore segments, its marketplace looks similar to the vibrant platform of the early 2000s with the firm leaning into its core competency of price discovery for non-new, in-season wares,” says senior equity analyst Sean Dunlop. After unsuccessful forays into fulfillment services and low-value customer segments, the company has prioritized its "focus categories,” and we’re increasing our fair value estimate to US$54 from US$51 for eBay after the latest planned sale of a portion of its stake in the Norwegian classifieds business.

We can see the shift towards collectors with expansion into authentication services, tuck-in acquisitions, and vertical investments, which Dunlop says drives healthy growth for eBay's most distinct inventory: “Those categories now represent 30% of gross merchandise volume and disproportionately cater to the 16 million high-value ‘enthusiast’ buyers who funnel more than US$3,000 in annual spending toward the commerce platform.”

eBay May Not as Big as Amazon But Still Earns a Moat

“Non-enthusiast” shoppers may still prefer to spend at the likes of Walmart (WMT) or Amazon (AMZN), but for what eBay lacks in mainstream appeal, it makes up for in customer consistency. “eBay’s strength in customer to customer (C2C) sales, a renewed emphasis on unique products with opaque pricing, and prudent investments in user experience should allow the firm to continue to generate excess returns through the 10 years implied by our narrow-moat horizon,” says Dunlop.

Dunlop acknowledges that eBay is set to continue to lose market share to Amazon and Walmart in commoditized, price-sensitive categories, but he continues to believe that focus categories like collectibles, auto parts and accessories, high-value sneakers, jewelry, and luxury resale should have plenty of room to run, particularly considering management's estimated $500 billion total addressable market.


bears eBay Stock Bears Say

  • The firm's lack of proprietary logistics operations and first-party inventory will likely see eBay continue to donate market share in the e-commerce channel more broadly.
  • Online commerce in the U.K. and Germany is set to expand more slowly than in the U.S., dragging on eBay's consolidated GMV growth even as its focused categories achieve market rates of growth.
  • With more than half of product search originating on Amazon or search engines in the U.S., customer acquisition and search advertising may grow increasingly difficult over time for the marketplace operator.

bulls eBay Stock Bulls Say

  • The firm's managed payments rollout was executed seamlessly, and offers optionality for auxiliary financial services down the line.
  • Recent successes in higher-touch luxury resale and collectibles categories offer a blueprint for prolonged growth in subsequent focused marketplace categories.
  • The firm's ability to quickly deploy platform improvements across geographies suggests a more flexible innovation roadmap and should underpin stronger international growth prospects as the focused categories rollout moves toward international markets.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
eBay Inc51.48 USD-2.31Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar Canada. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

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