eBay's (NASDAQ:EBAY) stock rallied about 40% this year as investors flocked to e-commerce companies that could benefit from store closures and stay-at-home trends during the COVID-19 pandemic. However, eBay still trailed behind many of its e-commerce peers.

Amazon's (NASDAQ:AMZN) stock is up 70% year to date. Shopify (NYSE:SHOP) has risen over 160%, and shares of Etsy (NASDAQ:ETSY) have more than tripled. Is there any reason for investors to stick with eBay instead of those higher-growth plays?

eBay's campus in San Jose, California.

Image source: eBay.

Understanding eBay's business

eBay created the world's first online auction platform for person-to-person transactions 25 years ago. It subsequently expanded across dozens of countries and added new features -- including "Buy It Now" shopping, universal product code searches, and other services -- to broaden its ecosystem.

Between 2002 and 2015, eBay owned PayPal and processed payments through its platform. It spun off PayPal in an IPO in 2015 and started transitioning merchants to its new partner, the European payments processor Adyen, earlier this year.

eBay is currently the third largest e-commerce platform in the U.S. after Amazon and Shopify in terms of gross merchandise volume (GMV), but the three companies operate different business models.

eBay is mainly a listing site that connects merchants to customers. It recently started to help high-volume merchants store their inventories in warehouses and fulfill orders via a network of third-party delivery partners. Amazon, meanwhile, is a direct retailer that stores its own inventories and fulfills its orders with its first-party logistics network, but it also competes against eBay by allowing third-party sellers to sell their products on its platform. Shopify provides e-commerce services that help merchants launch their own online stores.

How fast is eBay growing?

Last quarter, eBay's active buyers rose 5% year-over-year to 183 million. GMV grew 22% to $25.0 billion, and revenue increased 25% to $2.6 billion.

All three figures exclude its StubHub online tickets business, which it sold in February, and the classifieds business, which it plans to sell by the first quarter of 2021.

Like many other e-commerce companies, eBay generated significantly higher growth over the past two quarters as online purchases accelerated throughout the pandemic.

Growth (YOY)

Q3 2019

Q4 2019

Q1 2020

Q2 2020

Q3 2020

Annual Active Buyers

4%

2%

2%

5%

5%

GMV

(4%)

(5%)

(1%)

26%

22%

Revenue

0%

(2%)

(2%)

18%

25%

YOY = year over year. Data source: eBay. Table by author.

But unlike Amazon, Shopify, and Etsy -- which generated robust growth prior to the pandemic -- eBay's growth had previously been decelerating. It blamed that slowdown on new internet sales taxes in several U.S. states and a reduction in its marketing expenses, which stabilized its take rate (the percentage of each sale it retains as revenue) and profits but throttled its GMV growth.

That pressure continued until the second quarter of 2020. During that quarter's conference call in July, CEO Jamie Iannone declared: "Consumer behavior is rapidly evolving, and this dynamic has been accelerated by COVID-19 contributing to significant volume acceleration and new customer acquisition." Iannone also noted eBay's core marketplace business posted its strongest quarterly volume growth in 15 years.

During the third-quarter earnings call in October, interim CFO Andy Cring warned that "temporary COVID-related growth" should "moderate as mobility increases over time." However, Cring also noted eBay had seen "modestly improved underlying performance" relative to its pre-pandemic state, driven by an "increased velocity" in sales, the growth of its active buyer base, and various improvements to its platform.

Is eBay's stock cheap relative to its growth?

eBay expects its revenue to rise 19% to 20% this year on an organic constant-currency basis, which excludes its divested businesses. On the bottom line, it expects its non-GAAP earnings per share to rise 18% to 20%, driven by its "over-performance" in the third quarter and rosy revenue expectations for the busy holiday period.

Based on those estimates, eBay stock looks cheap at 16.6 times 2020 adjusted earnings. Next year, analysts expect its non-GAAP earnings to grow another 9%, which presents an even more attractive forward P/E ratio of just under 14. That makes eBay cheaper than its top e-commerce peers, but it's also growing its earnings at a much slower pace:

Estimated EPS Growth

Current Fiscal Year

Next Fiscal Year

Forward P/E

eBay

19%

9%

14

Amazon

52%

28%

72

Shopify

652%

2%

294

Etsy

180%

2%

74

Source: CNN Business/Yahoo Finance, as of Nov. 29.

So is eBay worth buying?

eBay stock is cheap, because investors believe its growth will decelerate after the pandemic ends. Its cost-cutting measures and divestments indicate it's playing defense in a market that favors aggressive expansion, and indirect competition from Amazon, Etsy, and social-shopping platforms could throttle its long-term growth.

The company isn't doomed, but it doesn't look as compelling as its peers. For now, I'd rather pay a premium for a high-growth opporunity than pocket the discount for eBay's murky future.