eBay Inc. is an American multinational e-commerce corporation based in San Jose, California, that facilitates consumer-to-consumer and business-to-consumer sales through its website. eBay was founded by Pierre Omidyar in 1995, and became a notable success story of the dot-com bubble. eBay Inc., which operates in more than 190 markets, provides an Internet service through which buyers and sellers are brought together in auction and fixed price formats to buy and sell a wide variety of items. This week, I fundamentally analyze eBay’s stock. I review eBay’s operating segments, look at its key ratios, derive the intrinsic value using Discounted Cash Flow (DCF) analysis, and calculate the expected rate of return from this investment. Since this is a long video, please feel free to use the time stamps in the video if you only wish to watch certain topics.
I review various key ratios such as Revenue, Net Income, Shares outstanding, Dividends, Payout Ratio, Free Cash Flows (FCF), Financial Leverage, Current Ratio, Debt to Equity Ratio, Return on Equity (ROE), Days Sales Outstanding (DSO), Days Inventory, Payable Period, Cash Conversion Cycle, Inventory Turnover, etc.
After taking into account eBay’s 2020 free cash flow of $1,925 million figure, a 7% growth rate of FCF (growth for the next 10 years), 10% discount rate, 5% long term growth rate (growth from 10 year mark to perpetuity), 702 million shares outstanding, and $7,735 million of long term debt, the DCF analysis yields us an intrinsic value of $55.09 per share. If we drop the discount rate from 10% to 8.8%, the intrinsic value comes to $77.09 per share. Using the current stock price of about $68 per share, and taking into the shares outstanding and future projects of free cash flows, we get the annual expected rate of return to be 3.8% if we hold this security through 2060.
0:43 Business Overview
3:25 Key Ratios Analysis
12:21 Discounted Cash Flow Analysis / Intrinsic Value
14:34 Expected Rate of Return Calculation
15:37 Summary / Conclusion
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eBay’s Website: here
Morningstar Key Ratios Link: here.
Useful Resources here.
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