eBay (NASDAQ:EBAY) stock has been on a tear in 2021. The stock is up over 36% year to date as investors are enthused about the company’s prospects even in the aftermath of the pandemic.
The company saw an increase in activity during lockdowns that is sustaining through economic reopenings. Users who recently signed up for the first time are liking the platform and deciding it is a nice choice to have. Here are three reasons why eBay stock is a nice choice for investors.
1. Never sold out
Supply chain issues have been plaguing businesses since the onset of the pandemic. Consumers changed their behavior on a dime, and manufacturers had little time to adjust. As a result, you had a situation where items like game consoles, home-office desks, and toilet paper were often sold out at local retail stores. Meanwhile, you had an abundance of items in categories that few people wanted, like tuxedos, business attire, and breath mints.
That highlighted eBay’s asset-light business model. The company did not face any supply shortages or overages, because it doesn’t carry an inventory of its own. When next-gen gaming consoles were sold out at Walmart and Target, eBay sellers had whatever you needed. Sure, you may pay higher than retail price, but the product was available.
Moreover, the concentration of consumer spending is also creating bottlenecks in shipping the items. Again, since eBay does not operate fulfillment facilities, leaving shipments and returns to buyers and sellers, it is not troubled with shipping constraints or elevated shipping and handling expenses.
There is no telling how long these supply issues will last. Every quarter it goes on, eBay gains more interest from consumers where it operates.
2. Advertising revenue growth
eBay’s active buyer growth during the pandemic was not remarkable. From the fourth quarter of 2019 to the first quarter of 2021, eBay added 13 million active buyers. But what matters more here is the level of activity, not the growing number of buyers. eBay reached a total of 187 million active buyers. That’s a large group of folks with a payment method on file, ready to bid on an item or buy an item outright.
And where you have ready and willing buyers, you usually have businesses ready to advertise to them, trying to convince them that their product is the one they should buy. Indeed, eBay generated $1 billion in ad revenue in 2020. And already in the first quarter of 2021, ad revenue was $224 million, up 58% from the same quarter in the previous year. Here’s what management had to say on expanding this opportunity:
We reached $1 billion of advertising revenue in 2020 primarily through Promoted Listings, which leverages a risk-free CPA (cost per acquisition) model for fixed-price inventory. To capture our next billion, we are running multiple experiments, including an ad product for auctions and cost-per-click capabilities. We are also exploring a new capability that expands seller exposure by increasing off eBay traffic to Promoted Listings.
3. A robust share buyback program
Finally, eBay has announced its intention to buy back $5 billion worth of its own shares in 2021. That equates to roughly 10% of the company’s $46 billion market cap. With the program in place, investors can be less fearful of a large drop in its share price. If such a drop was to happen, eBay could step in and buy up large chunks of its shares, lifting the price back up and reducing its overall share count.
The massive buyback program also signals to the market that management believes eBay’s stock is undervalued. That can go a long way in lifting investor sentiment. Still, there is a risk that buying in now would be inefficient — buying at high prices when all this good news is already priced into the stock, which is already up over 36% year to date.
Investors can split their purchase allocation into several tranches and conduct their purchases over several months to alleviate those concerns. That way, if there is a crash in the share price, part of your purchases will be at a lower price and therefore lower your overall cost basis.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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