Morningstar

A Smart Move for eBay

The transition into payments could enhance the network effect behind our narrow moat rating on the firm and improve consolidated take rates.

Securities In This Article
eBay Inc
(EBAY)

In a quarter where solid holiday gross merchandise volume, or GMV, growth (up 10%, or 7% on a currency-neutral basis) should have been the headline,

With structured data/AI, promoted listing first-party advertising, and guaranteed delivery making eBay a more competitive platform, we believe a move into payments could enhance the network effect behind our narrow moat rating. In other words, we expect consolidated take rates to improve from mid-8% in 2017 to the low double digits because of this transition. We're intrigued as to whether this and other marketplace enhancements like voice/image search, VR/AR functionality, and simplified returns can make eBay a more attractive for vendors looking to diversify beyond Amazon, which could narrow the gap between eBay's GMV trajectory and global e-commerce growth trends in the midteens.

Based on its current Marketplace momentum and payment plans, we're planning to raise our 10-year revenue growth assumptions from the mid- to the high single digits. While there are still payment processing details to sort out, we anticipate at least a 10% increase to our $36 fair value estimate. While this implies shares are fairly valued, we believe eBay's transformation and capital-allocation stories should be on investors' radar screens for potential pullbacks.

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About the Author

R.J. Hottovy

Sector Strategist
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R.J. Hottovy, CFA, is a consumer strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He is responsible for consumer discretionary and staples research. He has covered the consumer sector as an analyst and director of global consumer equity research for Morningstar since joining the company in 2008, and specializes in a broad range of consumer categories including restaurants, footwear and apparel retailers, consumer electronics retailers, fitness clubs, home improvement and furnishing retailers, and consumer product manufacturers.

Before joining Morningstar, Hottovy was a director and senior stock analyst for Next Generation Equity and an analyst for William Blair & Co., specializing in a wide range of retail and consumer product companies. He also spent two years at Deutsche Bank, covering waste management, water utilities, and equipment rental stocks.

Hottovy holds a bachelor’s degree in finance and a second degree in computer applications from the University of Notre Dame, where he graduated magna cum laude. He also holds the Chartered Financial Analyst® designation and is a member of the CFA Institute and the CFA Society of Chicago.

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