eBay Inc. (EBAY) Annual Valuation – 2014

500px-EBay_logo.svgBenjamin 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 5 Undervalued Companies for the Defensive Investor Near 52 Week Lows.  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 specific look at how eBay Inc. (EBAY) 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. Effective February 19, 2014, eBay Inc acquired PhiSix Inc.

EBAY Chart

EBAY data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 3/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. 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
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. 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 = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – FAIL
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

MG Value $67.80
MG Opinion Fairly Valued
Value Based on 3% Growth $32.50
Value Based on 0% Growth $19.05
Market Implied Growth Rate 7.35%
Net Current Asset Value (NCAV) $1.12
PEmg 23.20
Current Ratio 1.42
PB Ratio 3.36

Balance Sheet – 3/31/2014

Current Assets $22,359,000,000
Current Liabilities $15,741,000,000
Total Debt $4,124,000,000
Total Assets $40,545,000,000
Intangible Assets $10,062,000,000
Total Liabilities $20,936,000,000
Outstanding Shares 1,267,000,000

Earnings Per Share

2014 (estimate) $2.53
2013 $2.18
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

Earnings Per Share – ModernGraham

2014 (estimate) $2.24
2013 $2.05
2012 $1.93
2011 $1.75
2010 $1.30
2009 $1.18

Conclusion:

eBay is not suitable for the Defensive Investor or the Enterprising Investor.  For the Defensive Investor, the concerns are the low current ratio, lack of dividend payments, and high PEmg and PB ratios.  The Enterprising Investor is concerned with the lack of dividend payments and low current ratio.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities through a review of 5 Undervalued Companies for the Defensive Investor and 5 Undervalued Companies for the Enterprising Investor.  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $1.30 in 2010 to an estimated $2.24 for 2014.  This demonstrated level of growth supports the market’s implied estimate of 7.35% and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls within a margin of safety relative to the price.

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:  The author did not hold a long position in eBay Inc. (EBAY) or any other company mentioned in the article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from wikipedia; this article is not affiliated with the company in any manner.


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