Internet Services Stocks

eBay Inc Valuation – December 2016 $EBAY

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – December 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how eBay Inc (EBAY) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): eBay Inc. (eBay) is a commerce company, which operates through its Marketplace, StubHub and Classifieds platforms. The Company helps in enabling commerce on its platforms for buyers and sellers online. The Company has an open source platform that provides software developers and merchants an access to its application programming interfaces for developing software and solutions for commerce. Its Marketplace platforms include its online marketplace located at www.ebay.com, localized counterparts and the eBay mobile applications. Its StubHub platforms include its online ticket platform located at www.stubhub.com and the StubHub mobile applications. Its StubHub platforms provide customers with a place to purchase tickets to the games, concerts and theater shows and also enable owners to sell the tickets. Its Classifieds platforms offer online classifieds with a collection of brands, such as Mobile.de, Kijiji, Gumtree, Marktplaats, eBay Classifieds and others.

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of EBAY – December 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $32,837,308,785 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.60 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -9.01% Fail
6. Moderate PEmg Ratio PEmg < 20 21.72 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.96 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.60 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.26 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

EPSmg $1.37
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $19.82
MG Value based on 0% Growth $11.62
Market Implied Growth Rate 6.61%
Current Price $29.69
% of Intrinsic Value N/A

eBay Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings growth over the last ten years, the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings growth over the last five years, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $1.93 in 2012 to an estimated $1.37 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 6.61% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into eBay Inc revealed the company was trading above its Graham Number of $15.15. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 21.72, which was below the industry average of 158.7, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-3.42.

eBay Inc scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$3.42
Graham Number $15.15
PEmg 21.72
Current Ratio 2.60
PB Ratio 4.96
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Useful Links:

ModernGraham tagged articles Morningstar
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Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2016
Total Current Assets $9,783,000,000
Total Current Liabilities $3,763,000,000
Long-Term Debt $7,582,000,000
Total Assets $20,502,000,000
Intangible Assets $4,844,000,000
Total Liabilities $13,683,000,000
Shares Outstanding (Diluted Average) 1,139,000,000

Earnings Per Share History

Next Fiscal Year Estimate $1.67
Dec2015 $1.42
Dec2014 $0.04
Dec2013 $2.18
Dec2012 $1.99
Dec2011 $2.46
Dec2010 $1.36
Dec2009 $1.83
Dec2008 $1.36
Dec2007 $0.25
Dec2006 $0.79
Dec2005 $0.78
Dec2004 $0.57
Dec2003 $0.34
Dec2002 $0.22
Dec2001 $0.08
Dec2000 $0.04
Dec1999 $0.01
Dec1998 $0.01
Dec1997 $0.01

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.37
Dec2015 $1.35
Dec2014 $1.41
Dec2013 $2.05
Dec2012 $1.93
Dec2011 $1.75
Dec2010 $1.30
Dec2009 $1.18
Dec2008 $0.82
Dec2007 $0.55
Dec2006 $0.64
Dec2005 $0.51
Dec2004 $0.34
Dec2003 $0.19
Dec2002 $0.10
Dec2001 $0.04
Dec2000 $0.02

Recommended Reading:

Other ModernGraham posts about the company

5 Speculative and Overvalued Companies to Avoid – August 2015
Ebay Inc. Analysis – August 2015 Update $EBAY
30 Companies in the Spotlight This Week – 5/23/15
eBay Inc. Quarterly Valuation – May 2015 $EBAY
17 Companies in the Spotlight This Week – 5/10/14

Other ModernGraham posts about related companies

Facebook Inc Valuation – July 2016 $FB
Salesforce.com Valuation – January 2016 Update $CRM
Facebook Inc Valuation – January 2016 Update $FB
Netflix Inc Valuation – November 2015 Update $NFLX
Facebook Inc. Analysis – August 2015 Update $FB
Ebay Inc. Analysis – August 2015 Update $EBAY
Facebook Stock Analysis – Quarterly Update May 2015 $FB
eBay Inc. Quarterly Valuation – May 2015 $EBAY
Facebook Inc. Quarterly Valuation – February 2015 $FB
Salesforce.com Inc. Annual Valuation – 2014 $CRM

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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