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Internet Services Stocks

eBay Inc Valuation – May 2018 $EBAY

Company Profile (excerpt from Reuters): eBay Inc. (eBay), incorporated on March 13, 1998, is a commerce company, which operates through its Marketplace, StubHub and Classifieds platforms. The Company connects buyers and sellers around the world. Its platforms enable sellers around the world to organize and offer their inventory for sale, and buyers to find and purchase it. The Company’s platforms are accessible through an online experience (desktop and laptop computers), from mobile devices (smartphones and tablets) and by application programming interface (API) (platform access for third-party software developers). The Company’s platform is based on open source technologies that enable software developers and merchants to access its APIs for developing software and solutions for commerce.

EBAY Chart

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Downloadable PDF version of this valuation:

ModernGraham Valuation of EBAY – May 2018

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 $36,956,105,652 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.63 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
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 34.69% Pass
6. Moderate PEmg Ratio PEmg < 20 19.11 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.04 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 2.63 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.19 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $1.95
MG Growth Estimate 5.68%
MG Value $38.62
Opinion Fairly Valued
MG Grade D+
MG Value based on 3% Growth $28.21
MG Value based on 0% Growth $16.54
Market Implied Growth Rate 5.31%
Current Price $37.18
% of Intrinsic Value 96.28%

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 stability over the last ten years, and the poor dividend history, and the high PB ratio. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings stability 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 Fairly Valued after growing its EPSmg (normalized earnings) from $1.41 in 2014 to an estimated $1.95 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 5.31% 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 within a margin of safety relative to the price.

At the time of valuation, further research into eBay Inc revealed the company was trading above its Graham Number of $19.74. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 19.11, which was below the industry average of 148.17, 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 $-9.91.

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) -$9.91
Graham Number $19.74
PEmg 19.11
Current Ratio 2.63
PB Ratio 5.04
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $6,763,000,000
Total Current Liabilities $2,568,000,000
Long-Term Debt $9,208,000,000
Total Assets $24,555,000,000
Intangible Assets $4,868,000,000
Total Liabilities $16,959,000,000
Shares Outstanding (Diluted Average) 1,029,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.21
Dec2017 -$0.95
Dec2016 $6.35
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

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.95
Dec2017 $1.81
Dec2016 $2.93
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

Recommended Reading:

Other ModernGraham posts about the company

eBay Inc Valuation – December 2016 $EBAY
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

Other ModernGraham posts about related companies

Facebook Inc Valuation – March 2018 $FB
Salesforce.com Inc Valuation – April 2017 $CRM
Paypal Holdings Inc Valuation – Initial Coverage $PYPL
Netflix Inc Valuation – February 2017 $NFLX
Shutterstock Inc Valuation – Initial Coverage $SSTK
Synchronoss Technologies Inc Valuation – Initial Coverage $SNCR
eBay Inc Valuation – December 2016 $EBAY
Facebook Inc Valuation – July 2016 $FB
Salesforce.com Valuation – January 2016 Update $CRM
Facebook Inc Valuation – January 2016 Update $FB

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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