Steedy capital informe sobre EBay
EBAY (Long) The Partnership's investment in EBAY has never been predicated on the notion that it is "Amazon-like" and thus deserves an "Amazon-like" valuation. Quite the contrary – a key component of the mainstream equity "story" surrounding EBAY is the exact opposite: EBAY is not Amazon. Never has been and never will be. The result is that its shares are relatively unfavored and shunned from many investor portfolios, especially in the traditionally highgrowth technology sector. In the market, even the worst companies can represent an attractive investment opportunity at the right price.
Conversely, even the best companies can represent a bad investment opportunity at the wrong price. While EBAY is perhaps a middling e-commerce operator, I believe the price continues to fully justify an investment. Aside from valuation, the operative pillars of my investment thesis can be distilled as follows:
1) Despite the melting ice-cube nature of EBAY's core marketplace, the reports of its death have been greatly exaggerated;
2) the business is capital light and generates a copious amount of excess cash that is being returned to shareholders; and
3) there is significantly underappreciated value
in its collection of businesses, specifically StubHub (recently sold with impeccable timing) and its global portfolio of Classifieds. Coming out of the fourth quarter print, bears felt emboldened as the trend in Gross Merchandise Value (the total value of all goods transacted on EBAY's platform) continued to decline. What's lost in the focus on GMV is that organic FX-neutral revenue growth has decoupled from this statistic.
In FY'19, GMV declined 5% but organic revenue was up 2%. That's because EBAY is tapping into additional revenue streams including paid advertising and managed payments. While GMV will remain under pressure in FY’20 for a variety of reasons, the company guided to organic revenue growth of 1-3% supported by double-digit growth in paid advertising revenue and its platform-wide launch of managed payments in the second half. In FY'19 EBAY generated $2.5 billion of free cash flow. Its guidance for $2.1-$2.3 billion in FY'20 marks the company's 5th consecutive year of generating free cash flow in excess of $2.0 billion.
After returning $5.5 billion to shareholders last year, the company committed to repurchasing an additional $4.5 billion of shares in FY’20. Looking ahead, consolidated free cash flow should be considerably higher in 2021+ as the company fully ramps its managed payments offering (~$500 million of operating income) and delivers on its efforts to drive ~200 bps of margin expansion. This brings me back to my original point – even the worst companies can represent an attractive investment opportunity at the right price. With the puts and takes highlighted above (GMV declines, managed payments, paid advertising, cost savings, share repurchases), I estimate EBAY is trading
at ~8.0x 2021 FCF per diluted per share (excluding excess cash). This implies a 12.5% free cash flow yield on a large-cap investment grade rated company that priced 10-year bonds at 2.70% in early March.
The equity is orders of magnitude cheaper than the company's bonds and continues to represent an attractive bargain. The other way to look at valuation is on a Sum of the Parts basis. Following the successful sale of StubHub, all signs point to the company moving towards the sale of its Classifieds business later this year. In late February, the WSJ reported an indicative valuation of ~$10 billion for the business.
If this is the case, the company’s year-end 2020 enterprise value would be somewhere around $21.6 billion. I estimate EBAY’s core marketplace currently generates ~$2.9 billion of EBITDA (after corporate expense allocation) and is on track to add another $500 million next year with the global rollout of managed payments. All in all, this implies a valuation of 6.3x EV/EBITDA for EBAY’s core marketplace which is hardly demanding.