Please ensure Javascript is enabled for purposes of website accessibility

Why eBay Wins From Supply Chain Woes

By Parkev Tatevosian, CFA – Aug 10, 2021 at 11:10AM

Key Points

  • If an item is sold out at a major retailer, the customer might seek an alternative source.
  • Shopping on eBay can mean slower shipping times. But that's not such a disadvantage when supply chain woes are also slowing competitors' shipping times.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The company does not handle fulfillment, and items are rarely ever sold out on its platform.

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.

One way to play this situation as an investor is to look at eBay (EBAY 0.09%). Surprisingly, the company could actually benefit from the supply chain issues. Let's take a closer look at how. 

A container ship at sea.

Image source: Getty Images.

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.  

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Parkev Tatevosian owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends eBay and recommends the following options: long January 2022 $1,920 calls on Amazon, short January 2022 $1,940 calls on Amazon, and short October 2021 $70 calls on eBay. The Motley Fool has a disclosure policy.

Stocks Mentioned

eBay Stock Quote
eBay
EBAY
$45.20 (0.09%) $0.04
Walmart Stock Quote
Walmart
WMT
$153.22 (-0.10%) $0.15
Target Stock Quote
Target
TGT
$164.16 (-0.53%) $0.87
Amazon.com Stock Quote
Amazon.com
AMZN
$94.13 (-1.44%) $-1.37
Sony Group Stock Quote
Sony Group
SONY
$82.79 (-1.37%) $-1.15

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.