Weekly Equity Idea Highlight - 2020 06 29
Current market expectations for EBAY are excessively pessimistic. Markets expect UAFRS-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 its core marketplace and successfully monetized its StubHub business at the optimal time. It is the market leader with strong competitive advantages, which give reasons for it to sustain its strong 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 will 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 free cash flow outlook and about payments revenue
acceleration. They've also been confident about data initiatives boosting returns for ads and improving user experience and monetization. Finally, they have had confidence in the
resiliency of revenues in the midst of the pandemic, and the success they have had in growing their buyer base, boosting Marketplace margins, and managing the business overall.
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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