EBay Earnings: Margin Pressure Looking Stickier Than We Hoped, Harsh Market Reaction Justified

Narrow-moat eBay reported mixed earnings, with sticky margin pressure outweighing otherwise strong second-quarter results. While we take a positive view of the firm's long-term emphasis on focus categories (which outgrew the remainder of the marketplace by 7 points) and a swelling advertising platform (which grew 35% annually to 2% of gross merchandise volume, or GMV), we now expect margin pressure to bleed through 2024 as the firm invests in international shipping and digests a slew of recent acquisitions. More concretely, we no longer expect the online marketplace operator to return to prepandemic profitability until 2025, driving our anticipated mid-single-digit percentage haircut to our $54 fair value estimate. Shares continue to trade at about a 10% discount to our revised intrinsic valuation after the market's reaction (of similar magnitude) following the release.