Up More Than 30% in 2025, This Stock Is a Sell

This stock still looks significantly overvalued even after its recent pullback. EBay EBAY stock is having a great year, returning twice as much as the broad stock market. The company is navigating well amid economic uncertainty, helped by its focus categories (collectibles, auto, and fashion), the integration of artificial intelligence, and an expanding advertising business. And we think eBay has carved out a narrow economic moat with its network of buyers and sellers. However, investor enthusiasm for the stock is overzealous from where we stand: Even after the pullback in price after earnings, eBay stock still trades 32% above our $62 fair value estimate. In fact, this overvalued stock is one of Morningstar Chief US Market Strategist Dave Sekera's sells on this week's episode of The Morning Filter podcast, 3 Stocks to Sell and 3 Stocks to Buy in November. After eBay divested a number of noncore segments, its marketplace looks similar to the vibrant platform of the early 2000s, with the company leaning into its core competency of price discovery for non-new, in-season wares. After unsuccessful forays into fulfillment services and low-value customer segments, eBay has prioritized its core focus categories, with expansion into authentication services, tuck-in acquisitions, and vertical investments driving healthy growth for its most distinct inventory. Those categories now represent more than one-third of gross merchandise volume and disproportionately cater to the 16 million high-value enthusiast buyers who funnel more than $3,200 each in annual spending to the commerce platform each year. In our view, eBay has a narrow economic moat based on a network that grows increasingly valuable as more buyers and sellers enter its marketplace. As the original online auction market in the US, eBay has carved out an enduring niche, with a customer base of 134 million active members at year-end 2024 benefiting from an eclectic selection of collectible and one-of-a-kind goods, often lacking a definitive price index. The company has effectively monetized its network, generating revenue from listing fees, advertisements, managed payments, and revenue-sharing agreements with logistics partners. While eBay is the second- or third-choice platform in its home market and commensurately generates lower final value, advertising, and auxiliary services fees, it continues to generate modest growth in gross merchandise volume and consistent excess returns. Our 10-year average goodwill-adjusted return on invested capital forecast of 25% handily outpaces our cost of capital estimate of 10%. Read more about eBay's moat rating. Our $62 fair value estimate implies a 2026 enterprise value/EBITDA multiple of 13 times. We expect 7% revenue growth in 2025 and 7%-9% growth during 2026-28, as AI enhances eBay's top-of-mind presence with consumers. We forecast 4.8% average annual gross merchandise volume growth through 2034. We expect the company's take rate -- revenue generated per dollar of gross merchandise volume -- to normalize at around 15.2% in 2034, up roughly 140 basis points from 2024 as better traction in the advertising business and the addition of incremental financial services bolster eBay's share of on-platform transactions. Our 2025 operating margin outlook of 19.7% reflects near-term product investments. Our 2034 forecast for 21.6% GAAP margin is well short of the 28% high-water mark in 2021, but roughly in line with prepandemic results. Read more about eBay's fair value estimate. EBay remains exposed to consumer health, quickly evolving customer preferences, and the proliferation of competitors. In our view, any significant inflation or slowing global growth due to higher tariff costs or other issues poses headwinds to aggregate demand, adding risk as sales growth slows and margins contract on operating deleverage. EBay's shrinking exposure to nondiscretionary goods underpins high cyclical sensitivity. The operator has lost market share to larger e-commerce platforms during periods of heightened consumer pressure in recent years. We see execution risk as adding to the company's uncertainty, with success predicated on continuing platform improvement and the company's focus category approach. E-commerce marketplaces in general are subject to a maze of international regulations. Read more about eBay's risk and uncertainty.

Up More Than 30% in 2025, This Stock Is a Sell

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