Should investors buy on EBay now?
e-commerce company ebay (NASDAQ:EBAY) was one of the biggest movers on Wednesday after reporting surprisingly strong earnings and raising its dividend. The company’s outlook also has investors feeling positive about the stock.
Shares of eBay rose about 7% Wednesday, trading at about $47.50 per share. The stock price is up about 9% so far. Should investors buy on eBay now?
Strong Quarterly Returns Dividend Raise
The holiday quarter showed that eBay’s fourth-quarter sales rose 2% to $2.6 billion, better than analysts’ revenue estimates of $2.5 billion. This was driven by gross merchandise value (GMV) of $18.6 billion, up 2% year over year. U.S. GMV was flat at $8.9 billion in the quarter, while international GMV increased 4% to $9.7 billion. However, the number of active buyers fell 2% to 132 million.
eBay also saw a significant increase in its advertising revenue, reaching $368 million, a 33% increase over the previous year. Total advertising revenue for the quarter was $393 million, representing 2.1% of GMV.
However, eBay’s operating expenses rose 14% year-over-year to $1.4 billion, and operating profit fell 27% to $410 million. Operating profit margin fell from 22.5% to 16% in the fourth quarter of 2022. Our expenses increased overall, driven by increases in product development, sales and marketing, and general and administrative expenses. But ultimately, eBay’s net income was higher than expected at $728 million, or $1.40 per share.
Among its new initiatives this quarter, eBay launched a new consolidated shipping program that allows buyers to purchase multiple items from one seller at low shipping rates. We’ve also launched a new generative, AI-powered social caption generator designed to make social sharing easier for sellers.
The company has also increased its dividend for the sixth consecutive year, raising it 8% to 27 cents per share. eBay pays a strong dividend yield of 2.25%.
For the full year, eBay reported sales of $10.1 billion, up 3% year-over-year, but GMV was down 1% to $73.2 billion. Net income reached $2.8 billion, or $5.21 per share, up from a net loss of $1.3 billion in 2022. Additionally, eBay reported operating cash flow of $2.4 billion and free cash flow of $2 billion, with an operating margin of 19.2%.
“Our strong balance sheet and durable financial model allow us to protect our revenue growth and deliver solid returns on capital while investing in our strategic pillars,” Steve Priest, eBay’s chief financial officer, said in the earnings call. “I could do it.” “We are proud of our strong execution throughout 2023 and are confident that our strategy will drive long-term shareholder value.”
“Should I buy it now?”
The e-commerce giant expects sales of $2.5 billion to $2.54 billion in the first quarter of 2024, which would be roughly similar to the same quarter a year ago. First-quarter earnings per share (EPS) are expected to be between 86 cents and 90 cents, or $1.19 to $1.23 on an adjusted basis. Outlook for revenue and adjusted EPS were better than analysts had expected, which helped propel eBay shares higher on Wednesday.
With its balance sheet, liquidity, stable dividend, and low valuation, it’s hard not to like eBay. It’s trading at just 9 times earnings and 10 times forward earnings, so it looks like a decent value. However, we’re not sure there’s enough earnings growth potential to make too much of a difference to investors, especially in the near term. So eBay is a decent stock worth keeping an eye on, but investors could probably find better options right now.
disclaimer: All investments involve risk. Under no circumstances should this article be taken as investment advice or constitute liability for investment profits or losses. The information in this report should not be relied upon for investment decisions. All investors should conduct their own due diligence and consult their own investment advisors when making trading decisions.
