eBay (EBAY) has been largely forgotten among the exciting buzzy unicorn stories that we constantly hear about on business television over the last few years.
The Internet auction pioneer once held that kind of status during the dot com days of the 90s but that was 20 years ago. Since then, it’s cycled through a bunch of CEOs and seen its revenue growth grind to a snail’s pace. Many tech-focused investors would consider eBay almost dead at this point.
But Internet giants — even former ones like eBay — never truly die. Their traffic (which of course is linked to their CAC) just keeps coming like some kind of zombie apocalypse.
Many people in 2012 and 2013 liked to make fun of Yahoo! (YHOO) as a former Internet giant that now was essentially dead. If you accepted that kind of simplistic analysis, you wouldn’t have paid attention to their large ownership stake in Alibaba that would catapult the stock over the next few years.
eBay’s stock today reminds me of Yahoo’s in 2012 — on the cusp of a huge run that very few care about. Is Netflix or Apple or Amazon going to 3x over the next couple of years? Probably not. But eBay sure has a good shot to, which is why I own it.
Here’s what I like about the eBay story at this moment:
- It just appointed a new outside CEO yesterday — Jamie Iannone. I know nothing about him or his style but, being an outsider, he’s likely to want to put his mark on the company over the next 18 months which will help move its stock price up. He also has a couple of activist shareholders (including one on his board) who will be eager to help him do just that.
- They unloaded StubHub just before a global pandemic and upped their stock buyback to $4.5B a few weeks back. Let’s hope they were buying like crazy on the recent stock pullback down to the $20s. If they exhausted their entire buyback allocation, they would have retired 20% of their shares outstanding.
- They have already committed to selling off their Classifieds biz and Korean biz. If they do (and it will be this year), it will probably give them $15B (pretax). They could do more buybacks if they wanted (which the activists might lobby for), but that would probably be short-sighted. Long-term shareholders would probably do better if they instead targeted some EBITDA-generating private companies with great brands who need an exit at depressed valuations. If we learned anything from the 2009–2011 period, it’s that, just when tech companies should have been buying companies on the cheap, many were too busy cowering under their desks. There will be some good deals to be had out there in the next year.
- Assuming they spin off the Classifieds biz, eBay is currently priced around 6x EBITDA for 2020. Historically, their EBITDA multiple got as high as 26x in 2015. They are — despite being forgotten about by many — a free cash flow generating machine with flat top line growth. What if their new team is actually able to crank out a little growth in the next couple of years — or buy it through smart M&A? If they go back to the upper range of that EBITDA multiple this year or next, eBay is a $90 stock (instead of $35). And that’s before shrinking the shares outstanding by a fifth. Given that factor, I expect this to help eBay touch $100/share sometime in 2021.
- In my last email, I highlighted Zoom and Slack, which I argued were set up to permanently benefit from the global pandemic. I said that long-term consumer and enterprise behaviors would be altered by going through this terrible tragedy. We’ve already seen Amazon (AMZN) go to all-time highs as of today, as people shift their behaviors in certain ways. If this new management team is smart, they will ensure that eBay benefits as a post-corona winner as well. Consumers will need deals on goods like never before. Small Medium Businesses will need consumers like never before. eBay can show the world that it’s not a dinosaur. It’s a must-have bridge between those groups at this moment and going forward.
- Expect some cost-cutting with the new management team as well.
- If the general economy goes south as the year rolls on and pulls down the stock market with it, I think eBay will be one of the best defensive names in the tech world. Mid-$20s is probably the floor.
The bottom line is that eBay is a great deal at current levels, especially if the economy holds in there. This is another Yahoo circa 2012 situation.
Hopefully, their new CEO capitalizes on the opportunity.
PS. John Kosner writes in response to this post: “I have found eBay to be a secret weapon to find a host of things (paper towels, toilet paper, other essentials) that are difficult to get on Amazon.”
[Disclosure: Affiliates controlled by Eric Jackson hold long positions in EBAY, ZM and WORK]