To The Moon

$eBay(EBAY)$

Stock market volatility has continued into March 2025, increasing interest in dividend stocks like eBay. These stocks tend to be less volatile than most, particularly compared to growth stocks, which are more closely tied to market fluctuations. If you're seeking a lower-risk investment, eBay could be worth considering.

In this article, I'll analyze eBay's revenue growth history, cash flow from operations, and returns on investor capital. I'll also examine its dividend yield and valuation. Additionally, I’ll share a discounted cash flow (DCF) model for eBay and assess its valuation using forward price-to-earnings and price-to-free-cash-flow ratios to determine whether it's a worthwhile dividend stock at its current price.

Earning Overview

In the fourth quarter of 2024, eBay reported revenue of $2.6 billion, reflecting a 1% year-over-year increase. Gross Merchandise Volume (GMV) reached $19.3 billion, up 4% on an as-reported basis and 3% on a foreign exchange-neutral basis. The company achieved a GAAP operating margin of 21.1% and a non-GAAP operating margin of 27.0%. GAAP earnings per diluted share (EPS) were $1.40, while non-GAAP EPS stood at $1.25. During the quarter, eBay returned $1.0 billion to shareholders, including $900 million in share repurchases and $128 million in cash dividends.

For the full year 2024, eBay's revenue totaled $10.3 billion, a 2% increase from the previous year. GMV for the year was $74.7 billion, reflecting a 2% year-over-year increase on an as-reported basis and 1% on a foreign exchange-neutral basis. The company reported a GAAP net income from continuing operations of $2.0 billion, or $3.95 per diluted share, and a non-GAAP net income of $2.4 billion, or $4.88 per diluted share. GAAP and non-GAAP operating margins were 22.5% and 28.1%, respectively. eBay generated $2.4 billion in operating cash flow and $2.0 billion in free cash flow during 2024. Over the year, the company returned $3.7 billion to shareholders, including $3.1 billion in share repurchases and $533 million in cash dividends.

eBay remains highly profitable and continues to reward investors, returning $1 billion to shareholders in Q4 alone through share buybacks and dividends. Additionally, the company recently announced a 7% increase in its quarterly dividend. While top-line growth is limited, eBay’s ability to generate strong bottom-line results and increase dividend payouts makes it an attractive option at the right price. If partnerships with Meta Platforms and other initiatives begin driving meaningful growth, it could further enhance returns for shareholders.

Fundamental Analysis

Over the past decade, eBay's revenue growth has been nearly stagnant. While the company saw a surge during the pandemic—when more people shopped online—that growth wasn't sustainable. eBay’s platform feels outdated, with a cumbersome process for listing new items, and the company hasn’t made significant investments to improve it.

However, eBay still holds a strong market position in niche categories, particularly in collectibles like sports cards. While it struggles in the business-to-consumer (B2C) space, it remains a leader in the consumer-to-consumer (C2C) market. Looking ahead, investors should expect very slow revenue growth. If eBay manages to grow revenue by mid-single digits (4-6% per year), that would be a win. Even consistent low-single-digit growth (2-3%) would be considered solid for the company.

Despite its slow growth, eBay generates strong profits, significant cash flow, and operates an asset-light business model. Since it primarily facilitates transactions between buyers and sellers while taking a percentage of each sale, it doesn’t require substantial capital investment.

Despite this volatility, I believe eBay will generate strong long-term returns on invested capital. The company operates an asset-light business model—it doesn’t own inventory and has been conservative in its platform investments. However, this lack of investment has also contributed to eBay losing market share. Once a dominant force in online commerce during the early 2000s, the company has fallen behind due to minimal innovation. The platform remains largely unchanged from two decades ago, and listing items can be cumbersome. Investing in improvements could enhance returns on capital, but even without significant upgrades, eBay's strong market share in niche categories should allow it to sustain solid ROIC over time.

Dividend

For dividend investors, eBay currently offers a 1.64% yield. The company only began paying dividends in 2019 but has consistently increased them. Given its strong cash flow—23.5% from operations in the most recent quarter—it’s likely that eBay will continue raising its dividend over the next decade or two. This means that if you invest in eBay today, your dividend payouts could double or even triple over time.

Additionally, competition in the industry has eased, as major e-commerce platforms like Etsy, Amazon, and Shopify are all increasing fees for buyers and sellers. Since merchants face rising costs across all platforms, switching from one to another doesn’t provide much relief. This competitive dynamic benefits eBay and its investors.

Guidance

In Q4, eBay slightly exceeded its management's guidance, reporting $2.6 billion in revenue—a 1% increase year over year. This modest growth was driven by a 4% rise in gross merchandise volume (GMV), representing the total dollar value of sales on its platform. For the full year, revenue reached $10.3 billion, marking a 2% increase from 2023.

However, investors appear more concerned with eBay’s outlook for Q1 2025. Management expects revenue growth of at most 1%, which is consistent with recent quarters. However, many investors had anticipated an acceleration in growth, particularly with Meta Platforms now allowing eBay listings on Facebook Marketplace. The lack of any meaningful boost in guidance has dampened enthusiasm, leading to a decline in eBay’s stock price.

Despite these positive figures, eBay's guidance for the first quarter of 2025 has raised concerns among investors. The company projects revenue between $2.52 billion and $2.56 billion, slightly below analysts' expectations of $2.59 billion. Additionally, GMV is anticipated to be between $18.3 billion and $18.6 billion, falling short of the projected $18.86 billion. This cautious outlook has contributed to a nearly 7% drop in eBay's stock price following the announcement.

Overall, while eBay demonstrated stable financial performance in Q4 2024 and throughout the year, its conservative guidance for the upcoming quarter has tempered investor sentiment.

That said, shareholders are still benefiting in other ways. While revenue growth remains sluggish, eBay is projecting much stronger earnings per share (EPS) growth. The company posted EPS of $0.85 in Q1 2024 but expects around $1 for the upcoming quarter—an increase of nearly 18%, largely due to a reduced share count.

Free Cash Flow

​eBay Inc.'s cash flow statement provides insight into the company's financial health by detailing cash inflows and outflows across operating, investing, and financing activities. Below is a summary of eBay's cash flow components over recent fiscal years (figures in millions USD):​

Operating Activities: eBay's operating cash flow has remained relatively stable, with slight fluctuations over the years. In 2024, the company reported $2,414 million in net cash provided by operating activities, a marginal decrease from $2,426 million in 2023.​

Investing Activities: The cash flow from investing activities has varied, influenced by factors such as capital expenditures, acquisitions, and divestitures. In 2024, eBay's investing activities resulted in a net cash inflow of $2,213 million, a significant increase from $240 million in 2023.​

Financing Activities: eBay's financing cash flow has consistently been negative, primarily due to activities like debt repayments, share repurchases, and dividend payments. In 2024, the company reported a net cash outflow of $3,806 million from financing activities, up from $2,450 million in 2023.

Net Change in Cash: Despite the negative financing cash flows, eBay has managed to maintain a positive net change in cash in most years, indicating effective cash management. In 2024, the net increase in cash was $793 million, compared to $221 million in 2023.​

Overall, eBay's cash flow statements reflect a stable operating performance, strategic investing activities, and shareholder-friendly financing decisions. The company's ability to generate consistent operating cash flow supports its ongoing investments and capital return initiatives.

Risks and Challenges

For investors, this situation is beneficial, even though it may not be ideal for buyers or sellers. eBay's returns on invested capital (ROIC) stand at 15%, though they have been volatile. A significant reason for this volatility is eBay's acquisitive nature—it frequently buys and sells businesses, which impacts its financial metrics. For example, the company has divested its South Korean e-commerce business, spun off PayPal, and separated eBay Motors. This strategy of acquiring, divesting, and harvesting profits has been largely effective, but it does create fluctuations in ROIC.

Slow Revenue Growth eBay’s revenue growth has been stagnant, with only low single-digit increases in recent years. Unlike high-growth e-commerce competitors, eBay struggles to attract new buyers and sellers at the same rate, limiting its expansion potential.

Aging Platform and Lack of Innovation The eBay platform has remained relatively unchanged over the years, leading to criticism that it is outdated and difficult to use. Listing items can be cumbersome compared to newer platforms, discouraging sellers from staying on eBay. A lack of significant investment in technology and user experience may further erode its market share.

Tariff challenged "We are continuing to operate in quite a challenged macro environment, particularly in Europe," eBay CFO Steve Priest said on the company's earnings call, according to a transcript provided by AlphaSense. "And now, more recently, we're facing the uncertainty around U.S. tariffs and de minimis changes."

Dependence on Third-Party Sellers Unlike Amazon, which has a robust first-party retail business, eBay relies almost entirely on third-party sellers. This dependence means eBay has limited control over product availability, pricing, and customer service quality, which can negatively impact buyer satisfaction.

Macroeconomic Risks Economic downturns, inflation, and changes in consumer spending habits can directly impact eBay’s business. During economic slowdowns, discretionary spending decreases, leading to lower Gross Merchandise Volume (GMV) and revenue. Currency fluctuations can also impact international sales.

Valuation

Now, let’s examine valuation. Given its slow growth prospects, eBay stock is relatively inexpensive. It trades at a price-to-free-cash-flow ratio of 17 and a forward price-to-earnings ratio of 11.7. Additionally, my discounted cash flow (DCF) valuation suggests an intrinsic value of $80 per share, compared to its current market price of $67.

By multiple valuation measures—whether forward price-to-earnings, price-to-free-cash-flow, or discounted cash flow—eBay appears undervalued, even when factoring in its limited growth potential. So, is eBay stock a buy? I believe the answer is yes. At its current price, eBay presents an attractive opportunity for investors, particularly those seeking dividend stocks.

Market sentiment

eBay Inc. (EBAY) shares recently closed at $66.34, down 1.28% from the previous day, aligning with a generally negative market trend. Over the past week, the stock has experienced notable fluctuations, including a 3.3% drop two days ago, underperforming competitors like Amazon, Walmart, and Target. The stock is currently about 8.9% below its 52-week high of $71.61, reached in late February.

Investor sentiment toward eBay has been somewhat negative recently, with a small percentage of retail investors adjusting their holdings over the past week and month. The average age of investors holding eBay shares falls between 35 and 55 years.

One contributing factor to this sentiment is eBay’s recent earnings report, which projected first-quarter revenue below Wall Street expectations. The company anticipates revenue between $2.52 billion and $2.56 billion, slightly under analyst estimates. This outlook reflects weak demand for non-essential items such as collectibles and refurbished goods.

Conclusion

Overall, eBay’s stock has faced recent declines amid broader market softness and cautious investor sentiment, influenced by conservative revenue forecasts and competitive pressures. eBay remains a profitable business with strong cash flow, but it faces serious challenges that could limit its future success. The company’s ability to address platform innovation, competitive threats, and regulatory risks will be critical in determining its long-term viability as a leading e-commerce marketplace.

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