eBay: Narrow Moat Endures as Refined Strategy and Digital Investments Buoy Profits

Key Morningstar Metrics for eBay

• Fair Value Estimate
  : $67.00
• Morningstar Rating
  : ★
• Morningstar Economic Moat Rating
  : Narrow
• Morningstar Uncertainty Rating
  : High

eBay Stock Update

Operating as a capital-light platform, eBay EBAY connects 135 million buyers with 18 million sellers globally. Facing intense competition and a lack of switching costs, the firm has pivoted away from transient shoppers toward highly engaged enthusiast buyers and recommerce to defend its marketplace.

The bottom line: We’ve nudged our fair value estimate for narrow-moat eBay to $67 per share from $66, due to the time value of money. We maintain our High Uncertainty Rating and Standard Capital Allocation Rating. We view the shares as expensive, trading 60% above our fair value estimate.

• We now forecast 5.4% annual sales growth (from 5.9%) and average operating margin of 22.9% (from 22.4%). These changes incorporate 8.6% annual growth in high-margin ad sales as sellers increasingly rely on paid placement to gain visibility on the highly competitive platform.
• The shares are up roughly 23% in the year to date, versus the 7% rise in the Morningstar Global Markets Index. We believe the market is underestimating the level of investment to drive traffic and scale Depop, implying EBIT margin exceeding our forecast 24.5% increase by 2035.

Long view: We believe eBay’s clearest runway for growth lies in scaling recommerce and consumer-to-consumer sales, where secondhand demand and fragmented supply play to its strengths. Recommerce exceeds 40% of gross merchandise volume, and we believe it can represent over 50% in the long run.

• As management pursues organic and targeted inorganic opportunities to bolster its marketplace’s competitive standing, we believe the pending $1.2 billion acquisition of Depop should deepen its position in Generation Z fashion resale by integrating directly into eBay’s enthusiast base.
• We forecast capital expenditure to average 4.6% of sales, directed toward enhancing compute infrastructure, physical authentication hubs, and software development. We view these as vital investments to reduce seller friction and enhance buyer trust.