4. eBay Inc. (NASDAQ:EBAY)
Number of Hedge Fund Holders: 39
PE Ratio: 4.20
eBay Inc. (NASDAQ:EBAY) has remarkably stayed relevant in the ecommerce world despite tough competition from the likes of Amazon, Walmart, and several other internet-based ecommerce businesses. Despite beating market estimates on earnings per share and revenue in the third quarter results, the share price has pulled back in the past few days due to disappointing guidance numbers from the firm. The very business model of the firm is based on ESG beliefs as it prefers to sell second-hand and used items. A significant chunk of the revenue of the firm is thus considered environment-friendly.
KeyBanc analyst Edward Yruma recently maintained an Overweight rating on eBay Inc. (NASDAQ:EBAY) stock and raised the price target to $90 from $80, noting that the third quarter results pointed to the building momentum of the company in key categories.
Among the hedge funds being tracked by Insider Monkey, Boston-based investment firm Baupost Group is a leading shareholder in eBay Inc. (NASDAQ:EBAY) with 14 million shares worth more than $1 billion.
In its Q4 2020 investor letter, Steel City Capital, an asset management firm, highlighted a few stocks and eBay Inc. (NASDAQ:EBAY) was one of them. Here is what the fund said:
“eBay (Long): EBAY continues to be a core holding in the Partnership’s long book despite not having any “sexy” attributes or unknown catalysts. I like EBAY because it checks the boxes of being both capital light and priced as a value stock (low multiple of free cash flow), factors which are attractive in a potentially inflationary environment.
In 3Q’20 the company printed $2.6 billion of revenue vs. guidance of $2.4 billion (a $200 million beat) while full year revenue guidance was taken up by $400 million, implying 4Q’20 would be higher by $200 million as well. Free cash flow from continuing ops was guided to $2.3 billion for the full year, slightly above the $2.0 billion the business regularly generated before getting a Covid/stimulus related boost.
EBAY will have about $4.6 billion of cash on hand at year end5 and should receive another $2.0 billion in after-tax proceeds this quarter related to the sale of its Classifieds portfolio6 . Additionally, the company will receive 540 million shares from Adevinta which are currently valued at ~$8.3 billion, and also holds a warrant to purchase a 5.0% stake in payment processor Adyen which was last valued at ~$775 million. Additional asset sales are also not out of the question7 . Backing everything out at today’s market cap of $38.2 billion gives a clean market cap for the core marketplace of $22.6 billion. At a minimum, I expect $2.0 billion of free cash flow in FY’21, with the potential for a higher figure to the extent the incoming administration is successful in cutting additional stimulus checks. By FY’22, free cash flow should ramp to $2.3 billion after incorporating a full year’s contribution from the managed payments initiative. This values EBAY at 9.6x free cash flow, or 11.7x excluding stock-based comp.”
