Technology companies tend to intrigue a great number of investors in today’s market, perhaps because there tends to be a great potential for profit due to the comparatively low capital expenditure needs.  However, Intelligent Investors following Benjamin Graham’s methods must take the time to analyze the fundamentals of the company utilizing the various requirements and metrics Graham proposed.  It is through this sort of analysis that investors are able to determine whether a given company presents opportunity for profit while requiring a low level of risk.  The ModernGraham analysis is intended to compile information in order to compare an investment opportunity against another, and what follows is a specific look at how eBay Inc. fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): eBay Inc. is a global technology company. The Company enables commerce through three reportable segments: Marketplaces, Payments, and GSI. The Company by providing online platforms, tools and services to help individuals and small, medium and merchants around the globe engage in online and mobile commerce and payments, the Company can facilitate transactions. The Company also generates revenue through marketing services, classifieds and advertising. The Company has also created an open source platform that provides software developers and merchants access to its applications programming interfaces (APIs), to develop software and solutions for commerce. Its developer community includes more than 800,000 members. In December 2013, the Company announced that it has completed the acquisition of acquisition of Braintree.
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 3/7
- Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
- Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
- Earnings Stability – positive earnings per share for at least 10 straight years – PASS
- Dividend Record – has paid a dividend for at least 10 straight years – FAIL
- Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
- Moderate PEmg ratio – PEmg is less than 20 – FAIL
- Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL
Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5
- Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
- Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
- Earnings Stability – positive earnings per share for at least 5 years – PASS
- Dividend Record – currently pays a dividend – FAIL
- Earnings growth – EPSmg greater than 5 years ago – PASS
Valuation Summary
Key Data:
| MG Value | $64.66 |
| MG Opinion | Fairly Valued |
| Value Based on 3% Growth | $30.05 |
| Value Based on 0% Growth | $17.62 |
| Market Implied Growth Rate | 8.38% |
| Net Current Asset Value (NCAV) | $4.77 |
| PEmg | 25.27 |
| Current Ratio | 1.95 |
| PB Ratio | 2.98 |
Balance Sheet – 9/30/2013
| Current Assets | $23,476,000,000 |
| Current Liabilities | $12,028,000,000 |
| Total Debt | $4,123,000,000 |
| Total Assets | $40,067,000,000 |
| Intangible Assets | $9,429,000,000 |
| Total Liabilities | $17,300,000,000 |
| Outstanding Shares | 1,294,000,000 |
Earnings Per Share
| 2013 | $2.24 |
| 2012 | $1.99 |
| 2011 | $2.46 |
| 2010 | $1.36 |
| 2009 | $1.83 |
| 2008 | $1.36 |
| 2007 | $0.25 |
| 2006 | $0.79 |
| 2005 | $0.78 |
| 2004 | $0.57 |
| 2003 | $0.34 |
Earnings Per Share – ModernGrahamÂ
| 2013 | $2.07 |
| 2012 | $1.93 |
| 2011 | $1.75 |
| 2010 | $1.30 |
| 2009 | $1.18 |
| 2008 | $0.82 |
Conclusion:
eBay appears to be a very solid company that should intrigue value investors that classify themselves as Enterprising Investors. Â The company does not qualify for the Defensive Investor due to the current ratio not quite reaching the 2.0 requirement, the lack of dividend payments, and the high PEmg and PB ratios. Â The Enterprising Investor is much more interested, as the company only fails the dividend requirement. Â This investor type should feel very comfortable proceeding with further research to determine whether the company would be a good fit for their individual portfolios. Â Such research should include a comparison against some of eBay’s competitors, perhaps starting with a review of ModernGraham’s valuation of Amazon (AMZN) and ModernGraham’s valuation of Google (GOOG). Â From a valuation perspective, eBay has grown its EPSmg (normalized earnings) from $0.82 in 2008 to $2.07 in 2013. Â This is a very strong level of growth that definitely supports the market’s implied estimate of 8.38% growth and the market price falls within the ModernGraham valuation model’s margin of safety. Â As a result, the company appears to be fairly valued at the current time.
The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on eBay Inc. (EBAY)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.
If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!
Disclaimer: Â The author did not hold a position in eBay Inc. (EBAY) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.
Logo taken from the Wikipedia; this article is not affiliated with the company in any manner.
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