I've Seen Enough - Ebay Is Ready For Your Dividend Growth Portfolio (NASDAQ - EBAY) - Seeking Alpha

05/02/2021 I've Seen Enough - eBay Is Ready For Your Dividend Growth Portfolio (NASDAQ:EBAY) | Seeking Alpha
Dividend Strategy
I've Seen Enough - eBay Is Ready For Your

Dividend Growth Portfolio
Feb. 04, 2021 6:00 PM ET | eBay Inc. (EBAY) | AMZN, EBAYL, WMT | 12 Comments | 9 Likes
Khen Elazar Follow

5.98K Followers | Bio
Summary
eBay reported great financial results yesterday and declared another big dividend
raise.
The company is poised to grow and enjoy the continuous growth in ecommerce.
eBay is a good addition to your dividend growth portfolio.
Introduction
It's 2021 and it is still hard to find dividend growth stocks in the information
technology sector. While the last decade showed an increase in the number of
dividend paying stocks in the sector it is still limited. As an investor it pushed me to
look at growing free cash flow as a sign for future dividends. That's why I hold shares
in companies like Alphabet (GOOG)(GOOGL), Facebook (FB) and Amazon (AMZN).
eBay (EBAY) unlike the three mentioned above is a new dividend paying stock. I
followed the company since it initiated the dividend, and after yesterday's robust
results, it is my belief that eBay should be considered in your dividend growth
portfolio despite its short dividend growth streak, and especially after the company
announced another dividend raise yesterday.
https://seekingalpha.com/article/4403599-seen-enough-ebay-is-ready-for-your-dividend-growth-portfolio 1/18
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(Source: Seeking Alpha)
When I analyze dividend growth stocks, I use the graph below. I understand eBay
has a short history of dividend growth, but seeing the robust growth, and the
management's devotion to return capital to shareholders, I am willing to consider it. I
will analyze the company's fundamentals, valuation, growth opportunities and risks to
see if the company is attractive right now.
(Graph made by author)
According to Seeking Alpha company overview, eBay operates the marketplace and
classifieds platforms that connect buyers and sellers worldwide. Its Marketplace
platform includes its online marketplace at ebay.com and the eBay suite of mobile
apps. Its platforms enable users to list, buy, sell, and pay for items.
(Source: Wikipedia.org)
Fundamentals
The company enjoyed great year in 2020. The company managed to grow its gross
merchandise volume by 17% and translated it to revenue growth of 20% for the full
year. The company offers additional services to its buyers and sellers, and its ability
to offer a full suite of services such as authentication allow it to remain a leading
marketplace platform. The company in its Q4 earnings release yesterday said it
expects strong growth in revenues in 2021 fueled by growth in ecommerce and
services offered to its users.
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The EPS is just as impressive. The company achieved 20% EPS growth in 2020 and
did it with great margins exceeding the 30% mark. The company is expected to keep
growing its EPS as sales grow, and it will supplement it with its aggressive buyback
program. In its Q4 earnings release it forecasted double digits growth in EPS for
2021 which is in-line with the analysts' expectation.
eBay pays a dividend since 2019, and yesterday the board announced a second
dividend increase in 2021. I am usually not as comfortable with such short dividend
streaks, but the payment is extremely safe even after yesterday's 12.5% dividend
raise, and when we use adjusted EPS the payout ratio will be 18%-20% in 2021
which leaves plenty of room for growth and buybacks. The company's current yield
may seem low, but it suits the current payout ratio, and not extremely low compared
to the sector. I am comfortable with the dividend as the Andy Cring, the current CFO
stated yesterday:
We expect to deliver strong free cash flow and we will continue to return capital to
shareholders through share buybacks and dividends while being opportunistic with
strategic M&A to accelerate our core strategy.
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The company is returning capital to its shareholders not only using dividend but also
by buying back its shares aggressively. Since the PayPal spin-off the company
reduced the number of shares outstanding by almost 50%. eBay offers stable
growing dividend, aggressive buybacks, organic growth, and the financial flexibility to
use M&A to strengthen the business. I believe its fundamentals are extremely strong.
Valuation
The company is growing and growing fast. However, its current valuation doesn't
fl t it Th tf d P/E i 16 d ft th
https://seekingalpha.com/article/4403599-seen-enough-ebay-is-ready-for-your-dividend-growth-portfolio h i d ft 6/18
reflect it. The current forward P/E is 16, and even after the share price popped after
the great results were announced the valuation still seems attractive. A forward P/E
of 17-18 for a company which is a prominent player and offers double-digits growth is
attractive, and I find eBay attractive at that price.
The graph below from Fastgraphs shows a similar picture. eBay trades below its
historical valuation, and while the growth rate has slowed down, I still believe that the
current valuation is not justified. eBay will enjoy multiple expansion as it achieves its
goals for continuous double digits growth. In my opinion, eBay is attractive as long as
its P/E is below 20 with the current growth rate.
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(Source: Fastgraphs.com)
eBay offers investors a sweet combination of strong fundamentals and low valuation.
The company at the moment trades below its historical valuation and at a low forward
P/E. At the same time it offers fast growth of top and bottom line, decent growing
dividend, and an aggressive buyback. This is a combination that is hard to find in the
current business environment where every good business is rewarded with a large
premium.
Opportunities
Ecommerce is going to keep growing in 2021. While the growth rate will decelerate
as the brick and mortar stores will reopen, many markets especially in the west
should expect continues growth. This report from the Business Insider forecasts
strong growth in the United Kingdom and Germany, countries that account for 45% of
the sellers. In addition, eBay is already a leading player in the ecommerce business,
and it will be able to enjoy its size advantage and its leading position.
Moreover, in order to increase spending by users and attract new users, the company
offers additional services to its marketplace platform. A good example for that is the
authenticity guarantee service for sneakers. There's a large market for rare and
limited-edition sneakers, and the market is full of fake sneakers. eBay's service
attracts new sellers and buyers, that as stated in yesterday's press conference stay
on the platform and buy other products as well. The company is also taking part in
projects like grants to small business sellers in an attempt to maintain close and
strong relationship with its users. The additional services and investments in the
relationship will allow eBay to attract more users and increase its user base.
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(Source: eBay.com)
The company is extremely diversified and it's an advantage versus competition. eBay
i l b l l d t l b ll Whil f it
https://seekingalpha.com/article/4403599-seen-enough-ebay-is-ready-for-your-dividend-growth-portfolio lik W l t (WMT) 9/18
is a global player and operates globally. While some of its peers like Walmart (WMT)
practically don't exist outside of North America, only 32% of eBay's sellers are in
North America. It gives the company to ability to grow into new markets quickly. In
addition, eBay also offers a wide array of products and services regarding these
products. From food to rare sneaker and luxury watches, eBay allows sellers and
buyers to buy almost anything no matter where you are on the globe.
(Distribution of eBay sellers worldwide as of June 2020, by country)
Risks
Sales growth has slowed down since the PayPal spin-off. The company that used to
achieve double digit growth rate in sale has done it only once since 2014. While
growth rate is still impressive, especially the 20% growth this year, there is still a
trend of slower sales growth going forward. When compared to marketplaces like
Amazon, eBay is growing significantly slower.
In addition, the company's debt load is also growing in the past decade. This is part
of the company's vision of a more efficient capital structure as it believes it can
leverage it to achieve higher returns. However, debt is always a two-edged sword,
and should be viewed as a risk. The company is aware of the risk and manages it
well so far. However, debt can turn into material risk for dividend growth investors
rather quickly. It also plans to lower interest rates by replacing old debt in 2021. Its
CFO stated yesterday:
We will continue to optimize our capital structure and recently announced our
intention to call our retail bond that we plan to replace with debt at favorable rates
in 2021.
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The competition is always a risk. The ecommerce business is competitive and there
are huge players like Amazon competing. While Amazon is not at the same niche as
eBay and they can coexist in my opinion, Amazon is known as a disrupter for many
industries, and operating along such a disrupting giant requires constant
improvement and innovation. The company manages to innovate and offer additional
services and making it harder to mimic its service.
Conclusion
I am bullish on eBay. I believe that the company has strong fundamentals and
attractive valuation. Its leading position and the additional services it offers will allow it
to keep its users and attract new ones. While the company does face risk, in my
opinion it manages them well, and has the ability to deal with them with its innovation
and balance sheet.
Investors might get deterred as the share price jumps today, but in my opinion, it is
still attractive. I have a trauma from trying to buy Microsoft at $44 and waiting for the
price to drop. Therefore, if investors believe that this thesis presented is correct, there
is no material difference in the long term. I believe that eBay will deliver high total
returns for investors going forward.
Disclosure: I am/we are long GOOG, FB, AMZN, WMT. I wrote this article myself, and it expresses my own
opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business
relationship with any company whose stock is mentioned in this article.
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9 Likes 12 Comments
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Comments (12) Newest
gregory.mcmahan Yesterday, 9:09 PM
Comments (692)
EBAY has been in my (retirement) portfolio- a traditional IRA, since 2007...
Why? It was the only profitable survivor from the netstock craze of the late 1990s, with a
viable business model and rising earnings. It was also a very easy-to-understand
business.
I haven't had any problems since. I just bought, and held, and watched it do its thing,
from both a stock AND an underlying business standpoint.
Reply Like (2)
gregory.mcmahan Yesterday, 9:10 PM
Comments (692)
@gregory.mcmahan
And when EBAY spun off PYPL, I kept it, too...
Reply Like (1)
greendeath Yesterday, 11:10 PM
Premium
Comments (713)
@gregory.mcmahan now THAT was good.

Reply Like (1)
dynx Yesterday, 8:38 PM
Comments (5.58K)
Okay super lazy. Sounds interesting and I should look into it myself but what’s with the
revenue drop off the cliff in 2013/14? Any answers appreciated including “google you
idiot”.
Reply Like (1)
Miguel Lorca Yesterday, 9:57 PM

Comments (4.04K)
@dynx Wasn't that the PYPL spin off? (Mentioned in the article.)
Reply Like (1)
dynx Yesterday, 10:40 PM

Comments (5.58K)
@Miguel Lorca I thought that may be it but it wasn’t specifically mentioned.

That’s a huge revenue component though....surprised if PayPal was that high
back then.
Reply Like
toh192 Yesterday, 7:39 PM

Comments (3.26K)
I like eBay because it’s only really competitor is amazon, and they are in no position to
lower rates so margins should be safe.
Reply Like (2)
TXMaverick Yesterday, 6:48 PM

Comments (2)
You didn't add anything to risk about how eBay is alienating users that have used them
for decades, like me, by soon requiring SSN, bank account, etc., in order to get paid now,
and it's being handled by a foreign processing company (Adyen). Yeah no risk there.
Come the end of Feb you may see a mass exodus of users to alternate platforms.
Reply Like (5)
toh192 Yesterday, 7:40 PM
Comments (3.26K)
@TXMaverick hey, PayPal’s had your ssn for years, what’s the problem?
Reply Like
tinmantt Today, 12:46 AM
Comments (74)
@TXMaverickAgree- terrible company, with a tradition of abusing its sellers. I

know from 18 years of experience. WB says don’t purchase a stock in a company
that you personally would own- this is that company.
Reply Like (1)
Skyfall7 Today, 4:41 AM
Premium
Comments (109)
@TXMaverick AYden are well respected EU payment system. But costs

everyone less than Paypal. As regular seller on eBay welcome it & changes in
multiple payment systems as currently nearly 5%of transactions go to Paypal.
Buyers can now use credit cards, Apple Pay & Paypal etc buyer protection on
MasterCard also easier to activate if issue than PayPal’s longwinded system.
Saying that I still hold Paypal shares too, as great company. eBay has always
been underrated. It’s 2nd e-commerce site in U.K. after amazon. Every man & his
dog on it here! (edited)
Reply Like
labman106 Yesterday, 6:35 PM
Marketplace
Comments (2.60K)
I have owned EBAYL for years now. Great dividend. Going down to par $25 it seems for
now. Might buy more below $25.
Reply Like (1)

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05/02/2021 I've Seen Enough - eBay Is Ready For Your Dividend Growth Portfolio (NASDAQ:EBAY) | Seeking Alpha

I've Seen Enough - eBay Is Ready For Your

Khen Elazar Follow

eBay is a good addition to your dividend growth portfolio.

(Source: Seeking Alpha)

(Graph made by author)

(Distribution of eBay sellers worldwide as of June 2020, by country)

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Comments (12) Newest

gregory.mcmahan Yesterday, 9:09 PM

EBAY has been in my (retirement) portfolio- a traditional IRA, since 2007...

Reply Like (2)

gregory.mcmahan Yesterday, 9:10 PM

And when EBAY spun off PYPL, I kept it, too...

Reply Like (1)

greendeath Yesterday, 11:10 PM

@gregory.mcmahan now THAT was good.

dynx Yesterday, 8:38 PM

Reply Like (1)

Miguel Lorca Yesterday, 9:57 PM

Reply Like (1)

dynx Yesterday, 10:40 PM

@Miguel Lorca I thought that may be it but it wasn’t specifically mentioned.

toh192 Yesterday, 7:39 PM

Reply Like (2)

TXMaverick Yesterday, 6:48 PM

Reply Like (5)

toh192 Yesterday, 7:40 PM

tinmantt Today, 12:46 AM

@TXMaverickAgree- terrible company, with a tradition of abusing its sellers. I

Reply Like (1)

Skyfall7 Today, 4:41 AM

@TXMaverick AYden are well respected EU payment system. But costs

labman106 Yesterday, 6:35 PM

Reply Like (1)

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