Ebay Inc. Analysis – August 2015 Update $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 Most Undervalued Companies for the Defensive Investor – August 2015.  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 global technology company. The Company has 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. The Company enables commerce through three segments: Marketplaces, Payments and Enterprise. The Company’s Marketplaces segment includes its ebay.com platform and its localized counterparts and its other online platforms, such as its online classifieds sites and StubHub. The Company’s Payments segment consists of its PayPal business. Its Enterprise segment includes its Magento business and provides commerce technologies, omnichannel operations and marketing solutions for merchants of all sizes that operate in general merchandise categories.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of EBAY

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 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 Fail
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 Pass
6. Moderate PEmg Ratio PEmg < 20 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 Pass
Score
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 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 Pass
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 1.33
MG Growth Estimate -3.58%
MG Value $2.20
Opinion Overvalued
MG Value based on 3% Growth $19.28
MG Value based on 0% Growth $11.30
Market Implied Growth Rate 6.38%
Current Price $28.26
% of Intrinsic Value 1284.07%

Ebay Inc. is not suitable for the more conservative Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio, the lack of dividends, and high PEmg and PB ratios.  The Enterprising Investor is concerned by the lack of dividends and the lack of earnings growth over the last five years.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities or proceed with a cautious speculative attitude.

As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) decline from $1.75 in 2011 to an estimated $1.33 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 6.38% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below 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.

Stage 3: Information for Further Research

EBAY Charts - August 2015

Net Current Asset Value (NCAV) $2.20
PEmg 21.26
Current Ratio 1.67
PB Ratio 1.75
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

 

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Most Recent Balance Sheet Figures

Total Current Assets $28,549,000,000
Total Current Liabilities $17,060,000,000
Long-Term Debt $6,757,000,000
Total Assets $45,658,000,000
Intangible Assets $8,185,000,000
Total Liabilities $25,853,000,000
Outstanding Shares 1,225,000,000

Earnings Per Share History

Next Fiscal Year Estimate $1.36
Dec14 $0.04
Dec13 $2.18
Dec12 $1.99
Dec11 $2.46
Dec10 $1.36
Dec09 $1.83
Dec08 $1.36
Dec07 $0.25
Dec06 $0.79
Dec05 $0.78
Dec04 $0.57
Dec03 $0.34
Dec02 $0.21
Dec01 $0.08
Dec00 $0.04
Dec99 $0.01

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.33
Dec14 $1.41
Dec13 $2.05
Dec12 $1.93
Dec11 $1.75
Dec10 $1.30
Dec09 $1.18
Dec08 $0.82
Dec07 $0.55
Dec06 $0.64
Dec05 $0.51
Dec04 $0.34
Dec03 $0.19
Dec02 $0.10
Dec01 $0.04
Dec00 $0.02

Recommended Reading:

Other ModernGraham posts about the company

30 Companies in the Spotlight This Week – 5/23/15
eBay Inc. Quarterly Valuation – May 2015 $EBAY
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eBay Inc. (EBAY) Annual Valuation – 2014
15 Companies in the Spotlight This Week – 2/1/14

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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.  This is not investment advice and all readers should speak with a registered investment adviser prior to making any investment decision.  ModernGraham is not affiliated with the company in any manner.

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