So you are sitting on your couch at home browsing through your preferred social media platform, and you notice that your case is looking repulsive. Where is the first place you think to hunt for a new phone case? If you are like most Americans, the answer would be Amazon (AMZN - Free Report) . With its aesthetically pleasing platform, breadth of options, extensive customer reviews, and same day delivery option, Amazon has entranced consumers.
This wasn’t always the case. There was a day not too long ago that the first online shopping platform that consumers thought of was eBay (EBAY - Free Report) . eBay started as a revolutionary auction site that allowed buyers to bid on a sellers’ item and the sale would go to the highest bidder. The novel part of eBay was that anyone could sell anything on the site (with obvious legal restrictions). People all over the world started putting their unwanted goods on eBay to sell. It seems that recently the flame that eBay used to have has been somewhat muted. They now appear to operate in the shadow of the seemingly omnipotent Amazon.
What most don’t realize is that a majority of eBay’s revenue comes from overseas operations. Overseas transactions make-up 60% of revenue and is growing faster than domestic sales with 8% growth in 2017 and 11% in 2018.
eBay’s top-line took a beating in 2014 and 2015 as their PayPal (PYPL - Free Report) segment spun-off to be its own separate entity. PayPal was initially bought in 2002 for $1.5 billion (77% above the IPO price earlier that year) and made up about 40% of their revenue before it was spun-off. eBay has been rebuilding its image ever since. eBay has been focusing on rebranding its own Marketplaces as well as growing its StubHub segment and eBay’s Classifieds Platforms.
StubHub was acquired by eBay in 2007 and has been a quickly expanding business. StubHub was bought for $310 million and now brings in over $1 billion in annual revenue.
We all know StubHub as the ticket exchange that always tacks on an extra 20+% in fees to the original ticket price, but we still use it anyway. Even with the extra fees it is still typically the cheapest ticket option. It’s the most user-friendly ticket exchange, and I personally use the site for almost every event I go to, whether it be sports, a concert, or even a musical.
This operation is a growing cash cow. The average transaction take-rate for StubHub ticket sales is over 22% its marketed value. It’s in the first few clickable options on almost every google (GOOGL - Free Report) searches for event tickets. This business has nearly doubled in revenue in just 5 years and this trend is not likely to be hampered.
eBay owns a number of classifieds platforms including brands such as mobile.de, Kijiji, Gumtree, Marktplaats, eBay Kleinanzeigen, and others. These classifieds are helping connect local communities around the world. The services help people offer services and goods on a local scale connecting them with a local need. This segment has been thriving over the last couple of years with a 13% top-line expansion in 2017 and 14% in 2018. The revenue from Classifieds comes primarily from the sale of advertisements.
Both the growth of StubHub operations and eBay’s Classifieds business has driven a large portion of eBay’s overall growth. I believe that these two businesses will be eBay’s saving grace. Their traditional Marketplace platform has also seen a substantial amount of top-line improvement since 2015. For eBay as a whole, they have seen consistent top and bottom-line growth in the past 3 years. They boast of 78% gross margins which is significantly above both Alibaba and Amazon, 47% and 40% respectively.
eBay is currently trading at a relatively cheap multiple with a forward P/E of 17 compared to the industry average P/E of 42.6. This could be an opportune time to get into EBAY cheap before the valuations grow for this robust firm.
EPS estimates by sell-side analyst for this stock have been increasing over the past 3 months, leading me to believe that the earnings coming up on April 25th could yield some positive results for investors. EBAY currently sits at a Zacks Rank #2 (Buy).
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