eBay Inc. Stock Is Becoming Very Attractive

eBay is a strong e-commerce and payments name that is trading at an attractive price. Strong market positions, share repurchases, and the presence of Carl Icahn will pave the way for higher upside.

Jun 25, 2014 at 6:32PM

eBay (NASDAQ:EBAY) shares are languishing near 52-week lows. The company swung to a loss in the last quarter after taking a big tax charge for repatriating overseas cash, and PayPal's chief, David Marcus, left the company to head Facebook's (NASDAQ:FB) messaging efforts. These events have weighed on the company's share price, but, eBay is still a fantastic business with great prospects.

Strong fundamentals 
eBay's marketplaces segment continues to attract buyers and sellers, who are conducting record transactions on its various platforms worldwide. Last quarter, the company's top line increased 14% year over year to $4.26 billion. 

PayPal also continues to be a major growth driver for the company; last quarter, PayPal's revenue grew 19% year over year to $1.85 billion, which is relatively faster than eBay's core marketplaces business, which grew 10% year over year to $2.2 billion. 

Both eBay and PayPal have a large number of customers in their respective platforms. PayPal has 148 million registered customers and eBay's marketplace has 145 million active customers. Both saw double-digit increases in the last quarter. With a strong performance of its core segments, eBay is still trading at a material discount to its intrinsic value. 

Short-term headwinds
eBay saw its operating income grow 10% year over year to $878 million in the last quarter, but swung to a loss because of a $3 billion charge for repatriating overseas cash. This charge for future tax payments drove eBay's EPS to negative territory and the stock started to trend lower. Investors were also surprised to see eBay pay the repatriation tax and bring funds back to the U.S. Other tech companies, like Apple (NASDAQ:AAPL) and Google, have large sums of cash outside the U.S., but they issue debt to pursue capital intensive tasks and avoid large tax bills. 

In addition, PayPal's president, David Marcus, left the company to pursue his product-centric interests at Facebook. Mark Zuckerberg lured the executive with his visions for Facebook's messaging services. Marcus did a great job at PayPal and made big contributions growing both PayPal's customer base and revenue consistently. His sudden departure from PayPal wasn't warmly received by the market, and now the company's stock trades at recent lows. 

Cashflow and EPS growth
eBay trades at a very cheap valuation compared to its growth trajectory and future earnings estimates. The company currently trades at 14.4 times its 2015 estimated EPS of $3.40. The repatriation tax charge left a dent in its income statement, but the company's operating cash flow grew 25% year over year to $1.17 billion in the last quarter, and free cash flow grew 52% year over year to $968 million. 

In addition, the company has a large share repurchase authorization in place and has Carl Icahn as a loud shareholder. The activist shareholder has stated that he thinks eBay is extremely undervalued and that the company is worth a lot more.  Icahn made similar remarks when he took a position in Apple when the iPhone maker was trading in the $450 range (before the stock split). Icahn eventually pushed Apple's Board to hike the share repurchase authorization program, which it eventually did increase from $60 billion to $90 billion. Apple stock rallied, now sitting close to recent highs. 

eBay made heavy share repurchases in the last quarter, buying back $1.8 billion worth of shares, and now has $3.8 billion left in its share repurchase program. The company can generate immense value by buying back more stock at a depressed valuation. eBay's peers trade at much higher valuation multiples, and if the stock price continues to trade below $50, there is a very high probability that Icahn will demand more aggressive share repurchases. 

Going forward
eBay is a strong e-commerce and payments name that is trading at an attractive price. The company is a major transactions enabler worldwide, and PayPal is increasingly seeing more consumer adoption both online and through offline channels such as PayPal Here. eBay has very strong market positions in all of the categories in which it operates. The buyback program will aid the company in growing its EPS, and the presence of Carl Icahn is also a good advantage for investors. eBay's valuation is very attractive and there is a lot of upside left in its stock price. 

Speaking of attractive investments...
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Ishfaque Faruk has no position in any stocks mentioned. The Motley Fool recommends Apple, eBay, and Facebook. The Motley Fool owns shares of Apple, eBay, and Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers