Choosing between eBay (NASDAQ: EBAY) and Etsy (NASDAQ: ETSY) is a simple choice between blue-chip dividends or riskier, small-cap growth. On the one hand, we have eBay, a well-established player in the eCommerce arena, and one with a well-recognized brand. It isn’t growing like it used to but it is paying a dividend and it has been growing the distribution as well. On the other hand, we have Etsy which is an established but less-recognizable name in eCommerce that is growing. It’s not paying a dividend at this time but it could. What it is doing is outperforming eBay in regard to its comps and they are both exceeding the Marketbeat.com consensus estimates. The takeaway for investors is that both companies are good buys and show signs of a bottom in their price action.
eBay And Etsy Move Higher On Strong Results
Both eBay and Etsy are up more than 5% in early premarket trading after delivering strong Q3 reports. One of the differences is that Etsy’s results are mixed at the headline level while eBay’s results are solid all the way through. Another difference is that Etsy’s $594.47 million in net revenue is up 11.7% YOY while eBay’s revenue is down 4.0%. They both reported a decline in gross merchandise sales, both heavily impacted by FX headwinds, but the difference is clear. In regard to the estimates, they both beat but Etsy comes out ahead once again with 530 bps of outperformance compared to a lesser but still noteworthy 340 bps for eBay.
Moving down to the margin both companies reported a decline in margin and this is where eBay begins to shine. The larger company reported a smaller 340 basis-point decline in margin compared to a 500-point shrinkage for Etsy which left Etsy’s $.58 in adjusted EPS $0.19 below consensus. The real takeaway here, however, is that the company is profitable and relatively flat versus last despite the FX headwind. As for eBay, it’s $1.00 in adjusted EPS beat by $0.07 and is up versus last year.
Both companies also gave favorable guidance and left room for outperformance relative to the analyst's consensus estimates but there is a problem. The guidance is more in-line with estimates than not and there is a risk of slowing activity due to economic conditions in 2023.
eBay Returns Capital to Shareholders
One of the biggest differences between the two stocks is that eBay pays a dividend and it is an attractive if young, distribution. The company has been paying the dividend for almost 4 years and has increased the payout each year so far. The dividend is worth 2.3% in yield with shares trading near $87.50 and it is backed up by some good metrics. The payout ratio in Q3 is running in the low 20% range and the outlook for earnings has that number getting smaller in Q4. eBay also buys back shares and bought back $301 million worth in Q3 or almost 3X what it paid in dividends.
The Technical Outlook: A Rebound Is At Hand
eBay and Etsy charts are eerily similar showing a downward slanting Head & Shoulders Reversal Pattern that may be confirmed very soon. The chart of Etsy is easiest to see with clearly defined shoulders and head that is being followed by a 7% upswing in premarket action. If the market follows through on this move and gets the price up above the 150-day moving average near $108 this stock could keep moving higher. The analysts, also of note, are upping their targets for Etsy and have it pegged at a Moderate Buy compared to the string of price target reductions and slipping sentiment for eBay.