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EBay: Better-Than-Expected Results Lead to Modest Fair Value Increase

While eBay presents investors with a compelling capital allocation story, shares are fairly valued.

In our view, there were two clear highlights coming out of

The second takeaway was ongoing strength of StubHub and eBay classifieds that saw year-over-year currency-neutral revenue increase 40% and 15%, respectively, owing to a combination of new seller tools and other listing innovations and a strong slate of events and new verticals. We believe StubHub in particular and eBay classifieds to some extent have both carved out differentiated networks of sellers and buyers within the broader e-commerce industry, which continue to give us comfort with our narrow moat rating. That said, we expect StubHub growth to slow in the back half of the year as it laps last year's pricing changes.

We plan to raise our $25 fair value estimate by a few dollars based on the better-than-expected results from Marketplaces and StubHub, and we view raised 2016 guidance--revenue of $8.85 billion-$8.95 billion, adjusted operating margins of 31%-33%, and adjusted EPS of 1.85-$1.90--as realistic. While eBay presents investors with a compelling capital allocation story--especially with a new $2.5 billion share repurchase authorization--we view shares as fairly valued and find more compelling value in wide-moat Amazon.

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The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

RJ Hottovy

Sector Strategist
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R.J. Hottovy, CFA, is a consumer strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He is responsible for consumer discretionary and staples research. He has covered the consumer sector as an analyst and director of global consumer equity research for Morningstar since joining the company in 2008, and specializes in a broad range of consumer categories including restaurants, footwear and apparel retailers, consumer electronics retailers, fitness clubs, home improvement and furnishing retailers, and consumer product manufacturers.

Before joining Morningstar, Hottovy was a director and senior stock analyst for Next Generation Equity and an analyst for William Blair & Co., specializing in a wide range of retail and consumer product companies. He also spent two years at Deutsche Bank, covering waste management, water utilities, and equipment rental stocks.

Hottovy holds a bachelor’s degree in finance and a second degree in computer applications from the University of Notre Dame, where he graduated magna cum laude. He also holds the Chartered Financial Analyst® designation and is a member of the CFA Institute and the CFA Society of Chicago.

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