AI, Trading Cards And Collectible Cars Will Open New Markets

Key Takeaways

• eBay's focus on key categories and strategic acquisitions could drive market presence and revenue growth in expanding sectors.
  
• Innovative AI features and enhanced advertising and partnerships may improve user satisfaction, operational efficiency, and earnings growth.
  
• eBay's reliance on weak markets and exposure to tariff changes could hinder revenue growth and net margin improvement despite tech investments.

Catalysts

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

• eBay's strategic focus on key categories such as trading cards, motors parts and accessories is expected to drive GMV growth, which could bolster revenue expansion and strengthen market presence.
  
• The rollout of innovative AI features like magical listing and Explore, alongside enhanced customer experiences, has the potential to uplift net margins by improving user satisfaction and operational efficiency.
  
• The acquisition of Caramel and the expansion into end-to-end vehicle transactions could enable eBay to tap into the $75 billion collectible car market in the U.S., providing an anticipated boost in revenue.
  
• Enhanced advertising strategies, notably the expansion of Promoted Listings, could lead to increased first-party advertising revenue, positively impacting overall earnings.
  
• Strategic partnerships, such as those with Klarna and Meta, are expected to drive higher GMV and conversion rates, supporting growth in earnings per share as eBay broadens its reach into new customer bases and geographic markets.

eBay Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on eBay compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming eBay's revenue will grow by 7.0% annually over the next 3 years.
• The bullish analysts assume that profit margins will shrink from 19.3% today to 18.9% in 3 years time.
• The bullish analysts expect earnings to reach $2.4 billion (and earnings per share of $5.41) by about April 2028, up from $2.0 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 bullish analyst cohort, the company would need to trade at a PE ratio of 15.9x on those 2028 earnings, up from 15.8x today. This future PE is greater than the current PE for the US Multiline Retail industry at 15.0x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.12%, as per the Simply Wall St company report.

eBay Future Earnings Per Share Growth

Risks

• eBay's reliance on the U.K. and Germany, where macroeconomic conditions and consumer confidence remain weak, could negatively impact revenue growth.
  
• The company faces a dynamic macro environment, notably in its second and third largest markets, which are experiencing slow e-commerce growth that could influence overall GMV growth negatively.
  
• eBay's exposure to changes in tariff policies and de minimis shipping regulations, especially concerning shipments from China, poses potential risks that could affect operating income and margins.
  
• The company's financial performance projections are tempered by ongoing uncertainties, including tariffs and macroeconomic challenges, which could hinder net margin improvement.
  
• Ongoing investments in technology and infrastructure, such as server and networking depreciation, result in increased expenses that might offset revenue gains, affecting overall profitability and potentially impacting net margins.

Valuation

• The assumed bullish price target for eBay is $80.0, which is the highest price target estimate amongst analysts. 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 bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $80.0, and the most bearish reporting a price target of just $49.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $12.6 billion, earnings will come to $2.4 billion, and it would be trading on a PE ratio of 15.9x, assuming you use a discount rate of 8.1%.
• Given the current share price of $67.05, the bullish analyst price target of $80.0 is 16.2% higher.
• 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.