eBay (EBAY) Initiating Coverage
eBay offers a compelling risk-reward set-up and is a buyback machine
We have initiated a position in $EBAY, and as a standard disclaimer are noting that nothing written below represents investment advice. Please consult your fiduciary prior to making any investment decisions.
eBay Inc. (EBAY) stands out as a compelling value investment in our view with a favorable risk-reward set up. We value the stock with a bull case 2-year price target (PT) of $125 and a bear case PT of $51, suggesting ~92% upside and ~22% downside - for a R/R of ~4:1.
This write-up is shorter than our standard initiating coverage reports, as the thesis is quite simple. eBay is driven by a high-margin, asset-light model and accelerating growth in enthusiast-focused categories. It sports 70+% gross margins, a massive buyback program, and a particularly strong brand. Annual GMV/revenue have been down in recent years, which feeds a pessimistic narrative on the name, driving a lack of “hot money” flowing into the stock. Recent quarterly GMV levels, however, appear to have stabilized. Even with zero/LSD top line growth in the business, and slight multiple contraction (EBAY already trades at a meaningful discount to comps), the stock has significant upside as a result of equity shrink. At its current valuation, the stock has an embedded free call option on future monetization opportunities—such as financing, insurance, or loyalty programs.
Moat & Competitive Dynamics
EBAY has a massive and under appreciated moat as sellers have built their reputations (i.e. ratings) on the site during its multi-decade history.
It is dominant in its niche and faces little risk of market share loss to other e-commerce giants. Amazon excels at common SKUs - for example, buying a 24-pack of 12 fl ounce Coca-Cola cans. However, if you were looking to buy 2008 Beijing Olympics-themed Coca Cola cans, you can only find them on eBay.
In other words, eBay thrives precisely where Amazon falls short. When seeking a generic consumer good, shoppers instinctively turn to Amazon. However, when the search revolves around unique, rare, or vintage items such as an out-of-print book, a collectible, or a discontinued product, eBay becomes the platform of choice.
eBay’s development of its own payment platform following the 2015 spin-off of PayPal stands as a pivotal yet underappreciated move that enhances the company’s long-term growth and moat. After initially relying on PayPal to process payments under a transitional services agreement, eBay began shifting to its managed payments system in 2018, completing the transition by 2021. This shift has allowed eBay to regain control over a vital part of its ecosystem, driving profitability and strengthening ties with its users, all while creating a meaningful growth opportunity for the business.
By managing payments in-house, eBay now retains a portion of the transaction fees that once went to PayPal, directly increasing its revenue per transaction. Historically, eBay’s take rate—the percentage of GMV it keeps as revenue—has ranged from ~8-10%. With its payment system, eBay adds an additional ~2-3% in processing fees, depending on the market and category, without altering its core marketplace model.
In 2023, 90+% of eBay’s GMV flowed through this system, contributing to improved operating margins. Across its $70+ billion annual GMV, this incremental revenue stream transforms what was once a cost into a scalable profit center.
Beyond financial gains, the payment platform bolsters eBay’s operational edge. Controlling the transaction process provides eBay with deeper insights into buyer and seller behavior, fueling better marketing, fraud detection, and product development.
This data advantage reinforces eBay’s position against competitors like Amazon and newer marketplaces, while reducing dependence on external partners. Additionally, the infrastructure opens doors to future monetization opportunities—such as financing, insurance, or loyalty programs—without requiring significant new investments.
The market, however, seems to overlook this development’s full potential. eBay’s stock often trades at a discount to peers, reflecting its mature marketplace status and slower GMV growth. Yet, the payment platform’s contribution adds a layer of value not fully recognized, enhancing margins and offering pathways to new revenue. For investors, this presents a compelling case: a stable core business paired with a strategic initiative that quietly amplifies its profitability and resilience.
Our bullish perspective is underpinned by operational efficiencies, a pivot to higher-margin categories, a $3 billion share repurchase program, strategic moves like the Caramel acquisition, AI enhancements, and potential revenue streams from controlling payments. With modest net debt, and a 1.8% dividend yield, eBay offers a rare mix of safety, income, and growth potential.