eBay Stock Forecast: Competitive as Ever in the World of E-commerce

Whitney
The article was written by Whitney Su, a Financial Analyst at I Know First.


Source: Wikimedia

“…we will continue to focus on growing our customer base, delivering on our ads and payment initiatives and returning capital throughout the year. We feel strongly about our ability to deliver value now and in the future to our customers, employees and shareholders”.

Devin Wenig, CEO, eBay, Inc.

Summary

  • eBay delivered an EPS of $0.67 for Q1 2019, up 26% versus prior year, and it is the fourth consecutive quarter of double-digit EPS expansion. This value is expected to grow with eBay’s plan of share repurchases.
  • eBay’s expansion into Japanese and Indian markets will target more users.
  • With a focus on improving the platform’s user-friendliness, eBay is sure to maintain its user base and attract more.
  • I give eBay a bullish long-term forecast given the points above. eBay adjusted its EPS and revenue output for the year, given strong Q1 2019 performance. EBAY is currently priced at $39.02.

Company Background

Many have been criticizing eBay’s underperformance in recent years. Critics claim that when it comes to fixed-priced commodity items, Amazon provides these items faster, more reliably, with better customer service, and at comparable (if not superior prices). For custom-made goods, Etsy is a rising star, with its gross merchandise sales soaring to more than $1.2 billion in 2018, its best performance in the metric to date. In the local classifieds category, there is Craigslist, which has offerings in most cities and offers a streamlined and low-cost experience. Therefore, it seems that nowadays, eBay’s dominance is only in the “rare or otherwise difficult-to-find items” market, which is a tiny fraction of most consumers’ buying needs.

Yet, despite all the negativity surrounding it, eBay still has 180 million active users as of the first quarter of 2019. Yes, even though the percentage of active users has experienced slower growth, it is still relevant. eBay is used by many as a “second-hand goods” platform, where vintage goods that are not as easily found on other retail sites such as amazon can be found. eBay is a great platform for collectible, hard to find, even “grey” market items. For instance, eBay’s platform is ideal for those who buy broken game systems for pennies, strip them down to the mother board, drive, and chip sets and then make a small fortune reselling. Or those who enjoy comic books from the 70-90s and don’t want to have to sift through bins at the comic shop only to have those come up empty. Antique and unusual car parts, import food/drink items, rare, out-of-print or obsolete publications are also all usually on eBay.

Technical Outlook

In Q1 2019, eBay generated $2.6 billion of total revenue, delivered EPS of $0.67, (up 26% versus the previous year, making it the fourth consecutive quarter of double-digit EPS growth) and saw $368 million in free cash flow. eBay has additionally purchased 42 million shares at an average price of $35.90 a share, amounting to $1.6 billion. The company ended the quarter with $5.7 billion of share repurchase authorization remaining. eBay’s first ever dividend amounted to $125 million total. eBay’s aggressive stock buy-back program shows its commitment to return capital to shareholders. Based off this strong Q1 performance, eBay’s leadership increased its revenue and EPS guidance.

For Q2, eBay has projected a revenue between $2.64 billion and $2.69 billion with an EPS of $0.61 to $0.63 per share. EPS growth will be driven primarily by eBay’s share repurchase program. For the full-year, eBay announced after Q1 results came out that revenue is expected to be between $10.83 billion and $10.93 billion. EPS guidance for the year is $2.64 to $2.70 per share. Cash flow outlook remains at $2.1 billion to $2.3 billion.

eBay Focusing on Japan

Source: TokyoTreat

eBay continues to explore opportunities to grow its customer base, striving to reach more buyers and sellers around the world. In 2018, eBay’s acquisition of Giosis’ Japan business was completed, including the Qoo10.jp platform, allowing the company to carve itself a niche in the huge Japanese e-commerce market. As of 31 August 2018, according to an export.gov report, Japan is the third largest (and among the fastest growing e-commerce markets, experiencing growth rate of 9.1% in 2017). With Internet penetration at an estimated 93.3% of the population, Japan represents a significant market opportunity. Japan’s highly developed economy, majority urban population, and single language make the market attractive to online retailers. Its relatively small country size and developed infrastructure make delivery easy and convenient. The Japanese e-commerce market is expected to experience stable growth in the near future.

India Looks Promising As Well

In 2018, eBay also reintroduced its eBay India marketplace after selling its equity investment in the Flipkart Indian e-commerce market to Walmart in the $16-billion-dollar takeover of the fast-growing Indian startup. The company is expected to gross more than $1 billion from exiting the relationship. eBay will no longer own a piece of the startup and will end its strategic relationship with India’s Amazon rival, Flipkart. That means Flipkart’s will no longer be licensed to use the eBay.in brand name. “We plan to relaunch eBay India with a differentiated offer to focus initially on the cross-border trade opportunity, which we believe is significant,” the company said in a statement. “We believe there is huge growth potential for e-commerce in India and significant opportunity for multiple players to succeed in India’s diverse, domestic market”.

Source: The Economic Times

And there is much reason for to make such a grand bet on India. According to data released by the India Brand Equity Foundation, India is a very promising market for strong potential growth in the e-commerce sector. The Indian e-commerce market is expected to grow to $200 billion by 2026 from $38.5 billion as of 2017. This is attributable to the fact that more and more Indians are getting connected to the Internet. The rapid ongoing digital transformation in India is expected to push up India’s total Internet user base to 829 million by 2021 from 560.01 million as of data last collected September 2018. India’s internet-based economy is projected to double from $125 billion as of April 2017 to $ 250 billion by 2020, majorly backed by e-commerce. Knowing this, eBay is eagerly trying to claim its share of the Indian e-commerce market.

Enhancing the eBay User Experience

With the plethora of e-commerce retailers out there these days, consumers have many options to choose from. Therefore, in an effort to ensure to the company stays competitive, eBay has taken great measures to enhance user experience. As for buyers on eBay, eBay has greatly simplified the process needed to become a fully registered customer. eBay also launched an expedited registration process at multiple points along the shopping experience. eBay has provided new guidance to improve their product coverage, which as a result, improves the structured database catalog, and this is beginning to lead to product experiences such as search and product pages that deliver better results. Additionally, visual search is improving, and eBay’s working on making it even more accessible. eBay’s customers are now doing an astounding 150,000 visual searches a day .

For sellers on eBay, there is a series of enhancements to make it easier to manage listings and provide value to buyers. Sellers now see competitive pricing data side-by-side when listing or managing their inventory. eBay also improved recommendations on items, which would benefit most from Promoted Listings and expanded seller eligibility in Q1 by more than 20%. Going forward, eBay says in its Q1 2019 conference call that “our focus will remain on empowering seller success, not on competing with them, while maintaining one of the most competitive take rates in our industry”.

Source: MarketPlace Pulse

eBay’s Payment Debut

Last year, eBay began a multi-year roll-out of a new payments experience, where eBay controls the entire payments flow on its market platform, simplifying the process for all. eBay’s payment debut is off to a good start, processing $143 million in gross merchandise volume through the newly debuted payments flow and saving participating sellers $1.2 million as of the end of 2018. eBay has also increased choice for consumers by adding Apple Pay at checkout. Additionally, eBay has worked on streamlining how its sellers manage business, saving them money. Overall these new changes to eBay’s payment strive to improve the user experience, making eBay as an e-commerce platform more convenient, attracting users and positioning it to be competitive with its largest rivals in the industry, such as Amazon and Alibaba. Earlier this year in March, eBay Pay was also launched in Germany, eBay’s largest market outside the US. Therefore, it isn’t surprising that Germany was the first non-US region to debut eBay Pay. (As of May 2019, eBay was the top shopping app downloaded in a variety of categories in Germany, showing eBay’s continued success in the country).

Alyssa Cutright, Vice President of Global Payments, said in an official statement, “…there is a pent-up demand for a checkout experience on eBay that is more consistent with retail standards and with more flexibility and choice for payment options. When managed payments becomes available in Germany and we continue to offer additional ways to pay, our sellers will gain more opportunities to access new buyers, who in turn will be able to pay how they choose in the streamlined payments experience”.

Source: eBay

Conclusion

eBay, though one of the first major e-commerce sites established, now faces stiff competition from established competitors like Amazon and also “up-and-coming” sites (e.g. Etsy, Shopify, etc.). As a result, eBay has experienced slower growth in recent years. Yet, eBay still has much potential to thrive and influence in this competitive industry. eBay is fully aware of its current predicament and has taken major steps to ensure that the company remains a dominant force in the e-commerce in the years to come. Noting the large and growing e-commerce opportunity in Japan and India, eBay has recently made significant ventures in both countries. Additionally, eBay has redesigned its market platform to make it more easy to perform transactions for both buyers and sellers. eBay boasts 180 million active and is clearly a force to be reckoned with. eBay entered 2019 with a strong commitment to its shareholders, promising modest revenue growth, double-digit EPS growth and more capital returns through continued share repurchases and dividend. This is all in good agreement with the bullish long-term I Know First forecast for eBay.

Current Bullish I Know First Forecast for eBay

The I Know First machine learning algorithm currently has a positive outlook for EBAY. The stock is bullish over the 1 month, 3 months and a year horizon. It is most bullish for the 1-year period with a signal of 172.48 and predictability indicator of 0.7.

How to interpret this diagram.

Past I Know First Success with eBay

On 25 April 2019, I Know First published a bullish forecast for eBay. Since then, the stock price has gone up by 1.30% to 39.02 as of 25 June 2019, showing another success of the I Know First algorithm in forecasting stock movement.

This bullish stock forecast was sent to the current I Know First subscribers 25 April 2019.

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Please note-for trading decisions use the most recent forecast.