eBay profits triple as shares near all-time highs

eBay profits triple as shares near all-time highs

The year 2020 ended with figures that surprised everyone: eBay earned $5.667 billion in profit, triple the previous year, with revenue reaching $10.271 billion, up 19%. The pandemic boosted e-commerce, pushing the auction platform, often considered obsolete, to record levels. The debate over whether this is an accounting anomaly or a genuine competitive advantage has persisted for years.

The investor who peine the case was blunt: network effect, maturity, and sticky users. eBay traded at a P/E ratio of 14x with growth above 20%, a 90% ROE, and a 17% return on assets, with low debt and no financial leverage. With these fundamentals, the conclusion was a clear buy. The thesis hasn't aged poorly: the stock hit $77, a new all-time high, and the P/E rose to 18-19x, still below what the market pays for other platforms.

The business that claims to be dying but isn't

Criticism didn't come from random doomsayers. Sellers with years of experience describe a trickle of losses due to commissions rising from 10% to between 11% and 16%, sales policies rejected by both buyers and sellers, and customer service that ceased to exist. "Years ago you could contact someone and they'd solve your problem; now it's left to chance," summarizes one of the most critical voices in the thread, citing specific cases: from 10 or 20 daily sales to zero, and from 25 messages a day to none.

There is an episode that illustrates the problem better than any report: an account hacked to sell iPhones and expensive items, recovered miraculously because the owner logged in within twenty minutes, and more than 15 hours waiting for the platform to restore control. Security, once its main asset when it was PayPal's natural gateway, is now perceived as full of holes. That sector of analysis concludes that eBay Spain, eBay Italy, and other local markets would be dead, according to these testimonials, and that those selling there do so out of inertia or residual visibility.

Why is it rising if it's killing its sellers?

Because the market doesn't buy anecdotes, it buys margins. The data discussed in the thread are from another league: gross margin of 75.90%, EBITDA margin of 32%, net profit margin of 24%, ROE of 79%, and a liquidity ratio of 1.80. With that profile, estimated annual growth of 20%, and a PEG of 0.92, some argue the stock remains cheap even after the rally. A P/E of 17x on 2021 earnings and 13.35x on subsequent years is not what you pay for a declining company.

The discrepancy has a geographical explanation often overlooked. The experience of the individual Spanish seller is not that of the US market, where lockdowns skyrocketed online consumption, nor the UK, where eBay saw a 237% increase in small shops. The business bleeding in one country may be growing in another, and the consolidated income statement only sees the sum. H1 2021 profits of $5.306 billion, with revenue up 27.6%, confirm that the total comes out positive.

The network effect, that mantra repeated without verification

The buyer's central thesis is that eBay has a hard-to-replicate competitive advantage: the more users participate, the more valuable the platform becomes. It's the same mechanism supporting Facebook, JustEat, PayPal, Alphabet, Amazon, or Visa, companies that have generated huge returns while building extensive communities. The argument is solid in theory but debatable in practice: the network effect protects until a platform with a better user experience appears, and eBay has been losing that battle against more agile competitors for years.

The investor himself acknowledges the nuance when comparing with PayPal: he considers it a clear competitive advantage with superior growth, but expensive, more than twice the price of eBay. His rule is not to overpay for quality. The underlying discussion isn't whether eBay makes money—it does, and a lot—but whether that money comes from a defensible position or from expiring inertia. The sale of several businesses that inflated H1 2021 profits doesn't help resolve the doubt: it pads the bottom line without saying anything about ordinary operations.

From collector auctions to NFTs

The platform has shed ballast and sought new ground. It allows selling NFTs, making it a pioneer among traditional online sales platforms, and has shown the ability to ride viral consumption waves: Squid Game merchandise sales surged 5,000% in Latin America. These are signs that the commercial machinery is still working, even if the long-time second-hand buyer feels pushed out.

Opportunity cost is the most uncomfortable argument for those holding on. Eight months in a sideways range of $50 to $60 is a long time with idle capital, and those who got bored and exited tell it without drama. The stock broke upward afterward, leaving the impatient watching, but the lesson isn't that holding always works: it's that no one knows when a consolidation ends until it has ended.

With the numbers in hand, the reasonable prediction is that eBay will remain a profitable, mature business with moderate growth and buybacks, more like a cash-generating machine than an expansion story. What isn't written is whether the network effect can withstand another decade of fierce competition or if the deterioration of local markets eventually contaminates the markets currently sustaining the bottom line. The discussion continues, unresolved.