Supply chain disruptions have been an ongoing issue since the onset of the pandemic. Economic lockdowns and stay-at-home orders initiated to help slow the spread of the coronavirus also slowed production.
Even though essential industries were allowed to stay open during the pandemic, operations were often disrupted by a COVID-19 outbreak. Moreover, many consumers have concentrated their spending on manufactured goods over the past 18 months since they didn't have alternative spending options (like concerts, sporting events, and theme parks) to spend disposable income on. The combination of supply disruptions and surging demand has strained the system, and there are no signs of the situation easing anytime soon.
Never sold out
eBay does not handle fulfillment and leaves the logistics of product delivery up to the buyer and seller. It merely acts as a platform for bringing the two together and collecting a fee for its service. In its most recent quarter, this sales model helped eBay earned revenue of $3 billion on gross merchandise volume of $27.5 billion.
Under normal circumstances, not handling fulfillment has been a slight disadvantage for eBay. Customers have gotten used to fast and free shipping and knowing what day the order will arrive from some eBay competitors that handle their own product fulfillment. But eBay's disadvantage here goes away when supply disruptions occur, since several retailers are experiencing delayed shipments and extended order-to-delivery dates.
Having an asset-lite business model without fulfillment facilities also allows eBay to earn higher profit margins. Indeed, over the last 10 years, eBay has earned an operating profit margin of 23.9%. Over the same time frame, Amazon has earned an operating profit margin of 2.2%. Spending more to manage the supply chain disruptions eats into that margin even further.
Finally, eBay is also benefitting from supply shortages at retailers. When the desired product gets sold out at major retailers, the resale market on eBay ramps up as buyers and sellers of those products connect and the product price (and eBay's cut) rises because of demand. Just one example of this was the demand for the Sony PlayStation 5 gaming console at Christmastime. Supply chain woes meant it was sold out for much of the season at Target and Walmart, but you could find several people selling the item at a premium price on eBay.
What this could mean for investors
The delta variant is extending the supply chain havoc caused by the coronavirus pandemic. Thankfully, over 4 billion doses of vaccine against COVID-19 have been administered worldwide. Still, the end of the pandemic is nowhere in sight. As long as there is a deadly virus in circulation, it looks like there will be supply disruptions. All it takes is one outbreak at a port to send home dozens of workers and prevent supplies from getting where they need to be.
The longer this disruption lasts, the more favorable eBay becomes in the eyes of consumers. That should help keep revenue elevated and help the company add new customers -- some of which will stick around in the aftermath. Looking out longer-term, the company will benefit as more shopping moves online in the wake of this change in how consumers access the things they need.
eBay stock is currently trading at a favorable price-to-earnings ratio of 16.36. Investors looking for a company that can do well through supply chain disruptions and the aftermath of the pandemic can feel good about adding eBay stock to their portfolio.