Even during a down period for the markets, eBay has gone against the grain, climbing to $72.71. Its shares have yielded a 15.1% return over the last six months, beating the S&P 500 by 17.4%. This performance may have investors wondering how to approach the situation.
Is there a buying opportunity in eBay, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is eBay Not Exciting?
Despite the momentum, we're cautious about eBay. Here are three reasons why EBAY doesn't excite us and a stock we'd rather own.
1. Active Buyers Hit a Plateau
As an online marketplace, eBay generates revenue growth by increasing both the number of users on its platform and the average order size in dollars.
eBay struggled with new customer acquisition over the last two years as its active buyers were flat at 134 million. This performance isn't ideal because internet usage is secular, meaning there are typically unaddressed market opportunities. If eBay wants to accelerate growth, it likely needs to enhance the appeal of its current offerings or innovate with new products. 
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect eBay’s revenue to rise by 4%. While this projection indicates its newer products and services will spur better top-line performance, it is still below average for the sector.
3. Shrinking EBITDA Margin
Operating income is often evaluated to assess a company’s underlying profitability. In a similar vein, EBITDA is used to analyze consumer internet companies because it excludes various one-time or non-cash expenses (depreciation), providing a clearer view of the business’s profit potential.
Analyzing the trend in its profitability, eBay’s EBITDA margin decreased by 5.7 percentage points over the last few years. Even though its historical margin was healthy, shareholders will want to see eBay become more profitable in the future. Its EBITDA margin for the trailing 12 months was 31.2%.
Final Judgment
eBay’s business quality ultimately falls short of our standards. With its shares topping the market in recent months, the stock trades at 10.5× forward EV/EBITDA (or $72.71 per share). Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're fairly confident there are better stocks to buy right now. We’d suggest looking at one of Charlie Munger’s all-time favorite businesses.
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