eBay (NASDAQ:EBAY) is one of the pioneers of e-commerce. It’s easy to forget that for several years eBay controlled a larger share of the online retail market than Amazon. Sure, everyone knows Amazon has boomed since then, but eBay has been a formidable force for nearly two decades.
The company is mature enough to have even started paying a dividend in 2019. eBay is in some ways a low-risk stock that exposes investors to the growth of the e-commerce industry. Let’s take a look at its performance, compare it to its valuation, and answer whether investors should buy eBay‘s stock right now.
eBay has room to increase its profits
The main reason why investing in eBay is less risky than Amazon is that eBay operates an asset-light business model. Amazon has spent billions of dollars building its fulfillment centers and logistics infrastructure. In addition, Amazon has many products sold on its platform. As Amazon grows in size, it requires greater capital investment to enable expansion.
Conversely, eBay does not have any inventory on its platform. Plus, it leaves shipping and handling to be settled between buyers and sellers. This way, eBay relieves itself of massive capital investments in fulfillment centers. Instead, eBay invests in its platform, where it brings buyers and sellers together to transact. eBay takes a percentage of these transactions as revenue. This has undoubtedly helped eBay increase its earnings per share (EPS) at a compound annual rate of 23.6% over the past decade.
eBay has been part of the online shopping boom during the pandemic. Its revenue grew 19.7% in 2020 and 17.2% in 2021. The company will also experience headwinds as economies reopen, giving consumers more options on where to spend their money. Still, many buyers who joined eBay during the pandemic will stick around for the long haul.
Additionally, eBay has made some changes to the business, strengthen its monetization of transactions. eBay’s take rate, which measures the percentage of gross merchandise sales it takes as revenue, increased from 10% to 12.1% between Q4 2020 and Q1 2022. This means that eBay will capture a larger percentage of sales on its platform.
There’s reason to believe that eBay’s increased turnout won’t push buyers and sellers away. Rival Etsy, which operates a similar business model, has a participation rate of 17.8%. Etsy’s rate suggests that eBay may have room to increase its acceptance rate over time.
eBay’s valuation makes it less risky than rivals
Another element that makes eBay less risky than its e-commerce competitors is its more favorable valuation. eBay ranks lowest overall when measured by a combination of the price-sales, price-earnings, and price-free cash flow metrics (see chart above).
eBay is a great company that has proven itself over decades and is now selling at a favorable valuation. For these reasons, it can be a wonderful time to buy on eBay. Stock.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Parkev Tatevosyan has positions in eBay. The Motley Fool holds positions and recommends Amazon and Etsy. The Motley Fool recommends eBay and recommends the following options: July 2022 Short Calls at $57.50 on eBay. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.