Topic: Value Stocks

Value Stocks: Website enhancements lift Ebay

eBay Inc

Improvements to eBay’s websites helped the company increase its number of active users in 2015. eBay’s revenue also rose, but the value of international transactions was cut by the high U.S. dollar.

EBAY INC. (Nasdaq symbol EBAY; 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), (comparison shopping) and (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.

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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 company’s spinoff of PayPal 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.

Value Stocks: Long-term debt 24% of market cap

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.

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, 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.

Recommendation in Wall Street Stock Forecaster: BUY

For our advice on key indicators for investing in value stocks, read Debt to equity ratio analysis can mislead—and here’s a better alternative.

For our view on another leading U.S. value stock, read Tupperware’s cash flow supports dividend.


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