EBay Could Introduce Dividend

EBay continues to feel the lingering impact of the May 2014 data breach, with management noting that it is having difficulties re-engaging occasional users, but analysts are positive

R.J. Hottovy, CFA 27 October, 2015 | 8:15AM
Facebook Twitter LinkedIn

After spinning off PayPal as an independent company in July 2015, eBay (EBAY) finds itself at a critical juncture with respect to the evolving digital commerce landscape as well as changing seller and buyer behaviours. EBay continues to feel the lingering impact of the May 2014 data breach/password reset and Google search algorithm changes, with management noting that core users have returned at high engagement levels but that it is also having difficulties re-engaging "occasional" users.

We would not be surprised to see the initiation of a dividend within the next several years or increased M&A activity 

Management's blueprint for a bringing back users includes a "back-to-basics" approach, prioritizing unique product selection, improved seller tools, data-driven merchandising, structured/catalogue data for manufactured product listings (designed to alleviate search engine optimization issues and facilitate more dynamic pricing), increased mobile capabilities, and emphasis on adjacent platforms like StubHub and classifieds.

These efforts strike us as prudent, and we believe eBay's customer-to-customer offerings have carved out a network effect within the broader digital commerce landscape, the impetus of our narrow moat rating. However, we believe the difficulties re-engaging with occasional users demonstrates the disruptive power of Amazon's third-party platform, particularly among eBay's core small and midsize business, or SMB, sellers, providing the basis for our more conservative long-term revenue growth outlook versus management's guidance of "greater than 0%-5%" growth.

Despite these concerns, the stand-alone eBay should still maintain strong financial flexibility; including $8 billion in cash – $600 million after stripping out debt. As well as additional debt capacity, and we believe income-oriented investors may find eBay's capital-allocation activity attractive. We would also not be surprised to see other moves in the years to come, including the initiation of a dividend within the next several years or increased M&A activity such as technology- or geographic-related acquisitions or the possibility of a takeover by another large global player.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Facebook Twitter LinkedIn

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
eBay Inc65.01 USD1.66Rating

About Author

R.J. Hottovy, CFA  is a director of equity analysis with Morningstar.

© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Modern Slavery Statement        Cookie Settings        Disclosures