Shares of narrow-moat eBay EBAY surged more than 9% after wide-moat Meta META revealed a pilot partnership to feature some of eBay’s listings on Facebook Marketplace for select users in Germany, France, and the US amid recent anti-trust rulings by the European Commission. While the market is championing this announcement as a potential boon to eBay’s gross merchandise volume, we believe it’s still too early in the integration phase to adequately assess its long-term impact and see eBay’s decision as a defensive move to protect against share losses in a highly competitive market.
No Change Expected to eBay Stock Fair Value
Further, we think the agreement is shrouded in unfavorable side effects, including the potential for margin dilution, limitations to its scale, and/or the ultimate longevity of the agreement, which could each dampen the intended benefits. While some competitors appear to be embracing a similar course, as seen in wide-moat Amazon’s AMZN agreements with Meta and narrow-moat Pinterest PINS, we don’t believe this implies eBay will pursue this avenue with other operators or channels. Thus, we are skeptical that this will be viewed as a key long-term strategy. We continue to have a positive view of eBay’s existing playbook, particularly its focus on its core categories that attract high-value enthusiast buyers, which we expect will help drive 3%-4% annual GMV growth over our long-term forecast.
With all things considered, we don’t plan on materially altering our $59 fair value estimate. When accounting for the runup in stock price, though, we don’t see eBay shares as attractive. Instead, we believe investors looking to build exposure to the online marketplace space should consider wide-moat Etsy ETSY, which trades around a 45% discount to our $100 fair value estimate. We posit investors are overly fixated on recent share losses and have failed to consider shifts in mix and geography, the cyclical nature of these pressures, and the fact that maturing cohorts should help drive lower churn and buoy spending over time.
eBay Stock vs. Morningstar Fair Value Estimate
Source: Morningstar Direct.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
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