A Smart Move for eBay
The transition into payments could enhance the network effect behind our narrow moat rating on the firm and improve consolidated take rates.
In a quarter where solid holiday gross merchandise volume, or GMV, growth (up 10%, or 7% on a currency-neutral basis) should have been the headline,
With structured data/AI, promoted listing first-party advertising, and guaranteed delivery making eBay a more competitive platform, we believe a move into payments could enhance the network effect behind our narrow moat rating. In other words, we expect consolidated take rates to improve from mid-8% in 2017 to the low double digits because of this transition. We're intrigued as to whether this and other marketplace enhancements like voice/image search, VR/AR functionality, and simplified returns can make eBay a more attractive for vendors looking to diversify beyond Amazon, which could narrow the gap between eBay's GMV trajectory and global e-commerce growth trends in the midteens.
Based on its current Marketplace momentum and payment plans, we're planning to raise our 10-year revenue growth assumptions from the mid- to the high single digits. While there are still payment processing details to sort out, we anticipate at least a 10% increase to our $36 fair value estimate. While this implies shares are fairly valued, we believe eBay's transformation and capital-allocation stories should be on investors' radar screens for potential pullbacks.
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