- eBay's rising fees have opened its moat to new competitors in the collectibles space, like livestream auction sites Whatnot, Popshop, and Upmesh, in addition to Etsy, Amazon, YouTube auctions, StockX, Facebook Marketplace, and Instagram.
- Collectors are classified as enthusiast buyers, which have grown to 16 million and account for over 50% of gross merchandise volume (GMV).
- eBay's massive scale gives it the liquidity advantage for now, but the lion on top of the mountain can only go down, as evidenced by its declining metrics.
- eBay is still experiencing normalization GMV fell (12%), and active buyers fell (9%) YoY in Q4 2022.
- Morgan Stanley reiterates a Sell rating with a $32 price target.
- EBAY shares trade 11X forward earnings with a 2.17% annual dividend yield.
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Global digital marketplace platform eBay Inc. NASDAQ: EBAY stock is still experiencing normalization versus tough post-pandemic comps. The online auction site of the past has evolved into a global e-commerce marketplace offering items at fixed prices and best-offer prices. It's slowly growing its live auction format and bolstering its collectibles items.
The pandemic accelerated e-commerce adoption and migration by years. It also bolstered interest in collectibles, from comic books and sports cards to memorabilia, jewelry, and sneakers. Media giants like The Walt Disney Co. (NYSE: DIS) and Warner Brothers Discovery, Inc. NYSE: WBD are building their respective cinematic universes to help drive higher interest as prices follow.
The advent of certified grading and authentication services established more objectivity and credibility in the collectibles space giving collectors more confidence in the items they purchased. eBay capitalized on this trend and has been running with it as a growth driver ever since. eBay coined a new metric for collectors called "enthusiast buyers," which account for over 50% of its GMV. eBay has been evolving its services to accommodate enthusiast buyers and sellers.
It invested and partnered with a consortium to partner with Funko Inc. NASDAQ: FNKO to become the preferred marketplace for Funko pops. eBay Vault was created for trading card sellers to store their cards for sale. eBay does the legwork of taking digital pictures, processing payments, and shipping for the seller.
The collectibles market tends to parallel the stock market. It saw unprecedented spikes in valuations during the post-pandemic stock market rise to all-time highs. Old and new collectors put their pandemic stimulus checks to work, bidding up prices to astronomic levels, just as new investors bid up meme stocks on trading apps like Robinhood Markets Inc. NASDAQ: HOOD to nosebleed levels.
Then it all collapsed in 2022 as the stocks entered a bear market driven by interest rate hikes from the U.S. Fed trying to contain high inflation. Just as stock markets collapsed, so did collectibles. Stimulus money was spent, and consumer discretionary purchases dried up. This was also reflected in eBay's business as the company continued to experience normalization and erosion.
Barbarians at the Moat
eBay has been raising its fees steadily for sellers. They’ve also taken over the payment processing after dropping PayPal Holdings Inc. NASDAQ: PYPL and raising their fees. This has irked numerous sellers, often referring to eBay as "fee bay" and searching for cheaper places to sell their goods.
This opened up the moat for competing collectibles e-commerce sites like Whatnot, Popshop, and Upmesh with livestream rapid auctions, StockX for sneakers and other collectibles, and Shortboxed for slabbed comic books. Not to mention established marketplaces like Amazon.com NASDAQ: AMZN. Etsy Inc. NASDAQ: ETSY, Mercari Inc. OTCMKTS: MCARY, Alphabet Inc. NASDAQ: GOOGL YouTube auctions, Meta Platforms Inc. NASDAQ: META Facebook marketplace and Instagram.
Eroding Market Share
The impact can be felt in eBay’s financials, notably its falling gross merchandise volume (GMV). While eBay is still the world's largest collectibles e-marketplace, the barbarians are at the gate willing to offer better terms to take some liquidity. Liquidity makes a marketplace efficient and desirable for buyers and sellers. eBay loses that liquidity as more sellers migrate to other sites for their collectibles. eBay still has the most liquidity, for now. The lion atop the mountain can only go down… or stay up.
Collectibles are a Zero Sum Game
Collectibles, unlike commoditized merchandise like t-shirts, are a zero-sum game. If you're selling a CGC 8.0 graded Incredible Hulk #181 on Shortboxed, eBay lost out on a $7,000 sale. You can only list the comic on one site, like double booking a flight. Since Shortboxed only caters to comic collectors, they have a specific growing liquidity pool. On the flip side, the fee for selling a $7,000 comic book on eBay is 13.25% or $927.50.
Shortboxed has a flat 10% fee, including payment processing, bringing the fee to $700 on the Hulk #181 or nearly 25% cheaper than eBay. This illustrates how eBay's market share and liquidity erode, especially with sellers.
On Feb. 22, 2022, eBay released its fiscal fourth-quarter 2022 results for December 2022. The company reported an earnings-per-share (EPS) profit of $1.07, excluding non-recurring items, versus consensus analyst estimates for $1.06, a $0.01 beat. Revenues fell (3.9%) year-over-year (YoY) to $2.51 billion beating $2.46 billion consensus analyst estimates. GMV fell (-12%) to $18.2 billion or down (6%) on an FX-neutral basis. Active buyers fell (9%) to 134 million. Promoted Listings revenues rose 19% to $276 million. The quarterly dividend was raised to $0.25 per share, up 14%.
Mixed and Missing Guidance
eBay expects Q1 2023 EPS of $1.05 to $1.09 versus $1.05 consensus analyst estimates. Revenues are expected between $2.46 billion to $2.50 billion versus $2.37 billion analyst estimates. Notably, the company didn’t provide full-year 2023 guidance, which many analysts took as a bad sign raising suspicions of more weakness ahead.
Sell Rating Reiterated by Morgan Stanley
Morgan Stanley reiterates its Sell recommendation on eBay shares with a $32 price target. Analyst Lauren Schenk noted that eBay's market share would erode even more. She stated, “Assuming '22 seasonality carries through '23 implies a -5% GMV decline in '23, which would leave '23 GMV below 2019 levels. This in our view solidifies our share loss thesis as it is difficult to identify any eCommerce business that will be smaller in '23 than it was in '19.”
Weekly Ascending Triangle Pattern
The weekly candlestick chart on EBAY shows the weekly ascending triangle comprised of a flat upper trendline converging with a rising trendline. This indicates flat highs versus higher lows until EBAY either breaks out through the flat trendline or below the rising trendline. The triangle commenced after peaking at $49.67 in August 2022. Shares cascaded down to a low of $35.74 in October 2022.
The weekly stochastic bounced back up through the 20-band triggering the weekly market structure low (MSL) breakout through $39.12, spiking shares as high as $46.89 before returning to the MSL support level. EBAY rebounded again, hitting $52.23 and triggering a market structure high (MSH) breakdown back under $47.65.
The weekly stochastic fell under the 80-band on a mini inverse pup as shares sold off on its Q4 2022 earnings report. The weekly 20-period exponential moving average (EMA) is flat and overlapping with the weekly 50-period MA at $45.42. Pullback support levels are $43.71, $41.47, $39.12 weekly MSL trigger, $37.31, and $35.74 swing low.
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