eBay: The Comeback Kid?

| About: eBay Inc. (EBAY)
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eBay surprised the street on the upside with revenue and earnings beat, and a better than expected guidance.

Marketplace remains solid, structured data continues to gain traction and mobile is ramping up nicely.

Stability enhances eBay's long-term M&A value for players such as Alibaba. Current valuation is attractive.

eBay's (NASDAQ:EBAY) Q2 surprised the market on the upside with revenue and EPS ahead of analyst expectations. More important, guidance also beat, suggesting some stabilization in the core ecommerce platform as it compete against the bigger giant Amazon (NASDAQ:AMZN). Additionally, ongoing share buyback remains an attractive proposition for value investors and the board approved an additional $2.5b stock repurchase after completing $500m share repurchase this quarter

Often times it is difficult for an old dog to learn new tricks but new tricks are necessary for survival. eBay is certainly evolving with their structural data initiative that is aimed to improve product search and categorization to regain sales growth. The business model shift towards fixed pricing is necessary given the structural decline of its auction business in that it could potentially help eBay to reshape its image of an auction-based and second-hand product site into a more legitimate ecommerce platform. Of course, the downside to this would be in direct competition with AMZN but given that ecommerce is still a growing segment in retail with only 10% penetration I believe that the market is big enough for both AMZN and eBay.

Revenue of $2.23b was ahead of consensus $2.17b while EPS of $0.43 beat consensus by a penny. Guidance of $8.85-$8.95b was ahead of consensus for the year. GMV growth of +6% showed stability in the marketplace while active buyer growth of +4% showed that eBay remains a relevant ecommerce platform despite competition from AMZN. Impressively, eBay achieve 1b live listings for the first time on its marketplace and the company has been leveraging its structured data to facilitate listings and refine user experience through better search, browsing, merchandising and ranking in search results. As such, user engagement has been strong judging by the doubling of product reviews in the quarter to 3.1m for a total of 12m reviews on the platform. This increase in engagement is ultimately accretive to improving sales and repeat customers, in my view.

On mobile, eBay continues to differentiate by improving its mobile app efficiency that is leading to marketplace mobile volume growth of +19% in the quarter. Although ecommerce has been growing quite strong in recent years, mobile ecommerce or mcommerce will be a bigger growth driver and it is important for eBay to be part of it. While it seems that eBay has an established mobile platform, a bigger catalyst could be partnership with FB Messenger (NASDAQ:FB) where eBay becomes a mcommerce channel for FBM users. This could allow eBay to leverage FBM's 1b+ users and drive medium-term revenue and user growth. So why eBay and not AMZN? AMZN competes against FB on multiple areas in media and online ecosystem so a tie-up is not likely. EBay is a less serious threat to FB and it is ultimately a net benefit for FB to have eBay on its platform given that ecommerce is a critical channel for mobile messenger experience.

Finally, stability in eBay's results will enhance its M&A value in the long-term as larger players such as Alibaba (NYSE:BABA) look to expand its presence in North America. Although eBay could be competitive and relevant in the near-term, I am skeptical of its competitiveness against AMZN in the long-run so I continue to see a take-out to be the best possible outcome for eBay. The likely buyer would be BABA that has failed to establish its own ecommerce site in the US, is looking to expand internationally and wants to scale its ecommerce platform on an existing site that already has the merchant relationships and the customer base. eBay fits this profile and I continue to see BABA's acquisition of eBay to be a good possibility in the long-run.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.