Overvalued Marketplace Will Suffer From Digital Disruption

Key Takeaways

• eBay faces declining relevance due to shifting consumer preferences, stronger competitors, and changing demographics that challenge user growth and engagement.
  
• Rising regulatory demands and logistics shortcomings threaten eBay's international expansion, compressing margins and intensifying pressure on earnings growth.
  
• Growth in enthusiast-driven categories, tech-driven innovation, successful advertising, and geographic and vertical expansion are supporting eBay's margin expansion and long-term value creation.

Catalysts

Operates marketplace platforms that connect buyers and sellers in the United States, the United Kingdom, China, Germany, and internationally.

• The ongoing shift among consumers toward seamless, integrated digital ecosystems offered by Amazon, Apple, and Google threatens eBay's marketplace-focused model, making it increasingly difficult for eBay to attract and retain buyers in the long-term, which will likely result in weaker revenue growth and stagnating Gross Merchandise Volume.
  
• Demographic changes toward a younger customer base that prefers instant, social, and experiential commerce are undermining eBay's relevance, as growth in categories like trading cards and collectibles is increasingly at risk of being cyclical and vulnerable to shifting preferences, suggesting long-term threats to user growth and engagement and ultimately top-line revenue.
  
• Competitive pressure from niche and social commerce platforms, such as Poshmark, Depop, and Facebook Marketplace, continues to erode eBay's marketplace differentiation, resulting in a likely decline in take rates, higher customer acquisition costs, and reduced ability to grow net margins over time.
  
• Increasing regulatory scrutiny, including higher compliance costs related to data protection, digital taxes, and cross-border trade barriers, threatens eBay's international expansion and is likely to compress operating margins and earnings in the years ahead, especially as cross-border corridors face greater obstacles.
  
• Advances in logistics and last-mile fulfillment by major e-commerce competitors set consumer expectations that eBay, as a pure marketplace, cannot match, putting it at risk for user attrition, lower conversion rates, and ultimately diminished revenue and pressure on earnings growth.

eBay Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on eBay compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming eBay's revenue will grow by 3.3% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 20.9% today to 17.9% in 3 years time.
• The bearish analysts expect earnings to reach $2.1 billion (and earnings per share of $4.02) by about August 2028, down from $2.2 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 13.9x on those 2028 earnings, down from 19.4x today. This future PE is lower than the current PE for the US Multiline Retail industry at 18.0x.
• Analysts expect the number of shares outstanding to decline by 6.54% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.7%, as per the Simply Wall St company report.

eBay Future Earnings Per Share Growth

Risks

• Ongoing secular growth in the global e-commerce and circular economy, combined with strong consumer demand for pre-loved, second-hand, and enthusiast-focused categories such as trading cards, luxury goods, and apparel, could continue to drive eBay's GMV and topline revenue higher.
  
• Strategic investments in AI-powered personalization, generative listing tools, and targeted CRM have begun reducing friction for both buyers and sellers, increasing conversion rates and listing volumes, which supports an acceleration in revenue and potential margin expansion.
  
• The successful ramp of higher-margin first-party advertising and promoted listings, with ad revenue growing 17% year-over-year and increasing take rates, provides a durable, scalable source of net margin and earnings growth, lessening dependency on pure transaction fees.
  
• Geographic and vertical expansion, particularly with managed shipping solutions in the U.K. and authentication in luxury goods, alongside product innovations like eBay Live and the Caramel acquisition for vehicles, opens up incremental revenue pools and creates new monetization opportunities beyond current focus categories.
  
• Stable or improving engagement among enthusiast buyers-who account for 70% of GMV and whose spend per buyer continues to rise-combined with disciplined capital allocation and sustained share repurchases, provides a foundation for long-term operating income growth and shareholder value creation.

Valuation

• The assumed bearish price target for eBay is $60.06, which represents two standard deviations below the consensus price target of $84.89. This valuation is based on what can be assumed as the expectations of eBay's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $102.0, and the most bearish reporting a price target of just $50.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $11.6 billion, earnings will come to $2.1 billion, and it would be trading on a PE ratio of 13.9x, assuming you use a discount rate of 8.7%.
  
• Given the current share price of $93.14, the bearish analyst price target of $60.06 is 55.1% lower.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.