Is EBAY a good value stock?

Hi all,

I am a new value investor that just started my investing career 2 months ago. I am glad that I found this forum and podcast. I am a big fan.

As you all know, it is such an overvalued market now. Good valued stocks are extremely rare. I found one potential valued stock and would like to know what the community think about it. Since I am a newbie, I would really appreciate any comments and suggestions.

The potential valued stock that I am referring to is ebay. I am pretty sure a lot of people have heard of ebay and are familiar with this company. The ebay Inc was really heat in the past, but it has died down in recent years. A lot of market shares were taken by Amazon and Alibaba. So I don't think it has an extremely strong moat to protect its business. However, ebay is still able to maintain its steady revenue (around 4.4 billion) for the past three years. Furthermore, the company has recently decided to offer price match guarantee strategy and improve its shopping platform to fight for market share. I believe that ebay can at least maintain its steady revenue each year. To support this idea, their revenue increases 4% in the most recent quarter (Q2 2017) compare to Q2 2016. Interestingly, one potential big red flag is that they only have 27 million earnings (decreased 94% compared to Q2 2016). This decline earnings was due to narrowing operating income. To increase earnings and the value of the stocks, ebay has announced that they will buy back shares in the near future. Base on the discount cash flow calculator that I used in this website, I found that the intrinsic value is ~$46 with 10% annual discount rate and the current market price is ~ $35.7. If my calculation was done correctly, then their management must have done a pretty good job in buying back share at a low price (They have already done some shares repurchasing at $28-30 price range) and their financial situation is alright. Not too much debt to be concerned.

Since I am new to this, I would really appreciate if anyone can give me some comments on whether I used the formula correctly. This is what I did. I calculated the average free cash flow for the past 10 years ( and it came out to be 2747.3. Since the TTM free cash flow is 2065 which is below the average, I decided to just use 2000 to be more conservative. Then I calculated the growth rate using net income in the past 10 years and came out to be ~40%. This is way too big and I don't think ebay can grow this big. So I just used 10% annual growth for 10 years and 3% to grow into perpetuity. The outstanding common share is 1.07 billion. This is how I got the intrinsic value.

Can anyone please give me some comments? I really want to learn from you guys. Is 10% annual growth assumption fair or do you think 10% is still way too high? What else would you recommend me to consider when picking a stock?

Thanks in advance for your help! I really looking forward to hearing back from you all.


  • HI @New_value_investor,

    for me this is a classical example, why I do not trust the Discounted Cash Flow Model - and I am sure that you have used the model absolutely correctly.

    So ebay indeed creates a large amount of free cash flow. Wonderful - but where does all the money go?? For the last 10 years they have not paid a dividend and the book value has appreciated from
    $8.67 in 2017 to $10.72 in 2017. Hm, that is an annual increase of 2.14%.
    Using the intrinsic value calculator with a discount rate of 10% I get an intrinsic value of $5.10
    Yes: FIVE dollars.

    In order to obtain an intrinsic value equal today's price of $35, I need to use a discount rate of MINUS 9.5%.

    With other words: If you buy at the current price, you can expect to LOOSE 9.5% every year for the next 10 years.

    As I said at the beginning: This is an example, why I do not trust in discounted cash flow. This model only looks at the expected cash flows and not at all at the balance sheet.
    What does it help me as a shareholder, if a company creates tons of free cash flow - but this money never reaches the balance sheet? Nothing.


  • Hi Christoph,

    Thank you so much for your response! You bought up a very good point. I didn't think about the book value at all. I will keep this in mind in my future pick.

Sign In or Register to comment.