EBAY INC. $24 (Nasdaq symbol EBAY; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 1.2 billion; Market cap: $28.8 billion; Price-to-sales ratio: 3.3; No dividends paid; TSINetwork Rating: Above Average; www.ebay.com) operates online auction websites in over 30 countries. Sellers pay fees to list and sell their goods through these sites.
In the past few years, eBay has expanded the availability of new merchandise: new items at fixed prices now account for 80% of eBay’s total transactions.
The company also operates several other popular websites, including StubHub (ticket sales for live events), Shopping.com (comparison shopping) and Rent.com (apartment and house rentals). These services are in addition to its local websites. As a group, they sell classified ads in over 1,000 cities.
The company recently sold its Enterprise division to a group of private investors for $925 million. That unit helps businesses process orders from their websites.
If you exclude costs related to the PayPal spinoff and other unusual items, eBay’s earnings in 2015 fell 6.5%, to $2.2 billion from $2.4 billion in 2014. During the year, the company spent $2.1 billion on share buybacks. As a result, earnings per share fell just 3.2%, to $1.83 from $1.89.
Revenue fell 2.3%, to $8.6 billion from $8.8 billion. The decline is mainly due to the negative impact of the high U.S. dollar on eBay’s overseas business. Those operations supply 58% of the company’s total revenue. Factoring out exchange rates, eBay’s revenue gained 5%. In addition, its number of active users rose 5.2% to 162 million.
eBay spent $923 million (or 10.7% of its revenue) on developing new products in 2015. That’s down 6.1% from $983 million (or 11.2% of revenue) in 2014.
Better searches should spur sales
eBay’s ongoing development spending involves a plan to index the over 700 million items for sale on its websites. That will make it easier for users to find specific items, and discover related goods. Enhancing the user experience will help the company compete with online sellers, such as Amazon.com, as well as traditional retailers that are expanding their own ecommerce websites.
The company’s balance sheet is sound. It holds cash of $6.1 billion, or $5.18 a share; its long-term debt of $6.8 billion is a manageable 24% of its market cap.
The stock is down 16% since the PayPal spinoff. It now trades at just 12.8 times the $1.87 a share that eBay will probably earn in 2016. That’s a particularly attractive multiple considering eBay’s strong brand and ability to profit as more people shop online.
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