Geo-specific Initiatives And AI Tools Will Improve Future Transaction Efficiency

Key Takeaways

• Geo-specific initiatives in the UK and Germany and AI tools aim to drive GMV growth and enhance transaction efficiency, impacting revenue positively.
  
• Strategic acquisitions and growing first-party advertising enhance product offerings and revenue growth, while expanding financial services improve margins.
  
• Introduction of buyer fees and managed shipping, reliance on cross-border trade, and fierce competition may negatively affect eBay's revenue and market share.

Catalysts

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

• eBay's investments in geo-specific initiatives, particularly in the UK and Germany, are expected to unlock a larger total addressable market with a focus on consumer-to-consumer transactions. This is likely to drive GMV and revenue growth while reducing friction through features like managed shipping and native listing flows, impacting revenue positively.
  
• Focus categories, such as parts and accessories, collectibles, and luxury fashion, continue to show robust growth. Strategic acquisitions like TCGplayer and Goldin are enhancing eBay's product offerings in collectibles, expecting to boost revenue and potentially net margins due to higher-margin items.
  
• The launch of new AI tools, such as magical bulk listings and improved listing features, aims to streamline the seller experience, potentially increasing the volume of listings and overall transaction efficiency. This should positively affect GMV and revenue growth.
  
• First-party advertising is growing significantly, with innovations like Promoted Listings and new ad formats. This expansion enhances the take rate and is expected to contribute positively to revenue growth.
  
• The expansion of payment options and financial services, such as enhanced seller capital solutions and partnerships with companies like Riverty, aims to increase transactional ease and seller capacity. This is likely to improve net margins and earnings by optimizing payment operations and providing additional revenue streams.

eBay Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming eBay's revenue will grow by 3.3% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 19.8% today to 17.7% in 3 years time.
• Analysts expect earnings to remain at the same level they are now, that being $2.0 billion (with an earnings per share of $4.5). However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $1.7 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.1x on those 2027 earnings, up from 15.2x today. This future PE is lower than the current PE for the US Multiline Retail industry at 20.2x.
• Analysts expect the number of shares outstanding to decline by 2.48% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.37%, as per the Simply Wall St company report.

eBay Future Earnings Per Share Growth

Risks

• The introduction of buyer fees and managed shipping initiatives in the UK could alienate sellers or buyers who are not accustomed to those changes, potentially impacting revenue negatively if user growth slows or reverses.
  
• Reliance on cross-border trade, particularly with markets like China, presents risks such as political tensions or changes in trade policies that could affect international trade and negatively impact eBay's GMV and revenue.
  
• The competitive landscape in key sectors such as collectibles and fashion, with major players like Walmart expanding in these domains, could drive market share losses for eBay if competitors offer better deals or exclusive partnerships, impacting future revenue and earnings.
  
• Implementation of initiatives like managed shipping and new financial services requires customer adoption and operational execution, which presents risks if these initiatives fail to meet user expectations or are not integrated smoothly, potentially affecting net margins.
  
• Economic uncertainty and macroeconomic headwinds, such as varying consumer demand during holiday seasons or impacts from U.S. elections, could stymie sales growth and negatively impact GMV and revenue.

Valuation

• The analysts have a consensus price target of $62.3 for eBay based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $72.0, and the most bearish reporting a price target of just $50.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $11.3 billion, earnings will come to $2.0 billion, and it would be trading on a PE ratio of 17.1x, assuming you use a discount rate of 7.4%.
• Given the current share price of $64.23, the analyst's price target of $62.3 is 3.1% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.