Weekly Equity Idea Highlight - 2019 01 23
Current market expectations for EBAY are excessively pessimistic. Markets expectUAFRS-based (Uniform) ROA (ROA') to decline significantly going forward, even though ROA' has been remarkably stable since the company spun off the PayPal business in 2015. However, EBAY has robust economic moats in both their core marketplace and their StubHub segments, where they are market leaders with strong competitive advantages, which give reasons for them to sustain their 3x or higher returns going forward.
Also, management alignment and confidence in recent calls point to reasons to believe in the sustainability and potential improvement in profitability going forward. Management is specifically compensated to focus on ROIC improvement, even as the market is expecting returns to decline. Management is also compensated to improve operating profitability and revenue, guaranteeing they'll seek to continue to invest in the business even while sustaining current robust profitability. Also, management has had confidence in their most recent earnings calls about their ability to produce strong earnings growth and margin expansion, pointing to reasons for optimism about ROA' and growth overall. Management also has specifically ben confident about their marketing strategy and their international growth, and their efforts to streamline their offerings to increase customer satisfaction and retain customers.
Considering low market expectations, in terms of pessimism for both growth and Uniform ROA, management's strong alignment, and confidence about sustaining strong fundamental performance, current low equity valuations appear unreasonable, spelling potential for equity upside.
eBay is a global commerce provider, which includes its Marketplace, StubHub and Classifieds platforms. The company's Marketplace platforms include its online marketplace located at www.ebay.com, its localized counterparts and the eBay suite of mobile apps. The company's StubHub platforms include its online ticket platform located at www.stubhub.com, its localized counterparts and the StubHub mobile apps. These platforms connect fans with their favorite sporting events, shows and artists and enable them to buy and sell tickets whenever and wherever they want. The company's Classifieds platforms include a collection of brands such as mobile.de, Kijiji, Gumtree, Marktplaats, eBay Kleinanzeigen and others.
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