I.

Company description

eBay Inc. is a global commerce leader, including our Marketplace, StubHub and Classifieds platforms.
Our Marketplace platforms include our online marketplace located at www.ebay.com, its localized
counterparts and the eBay mobile apps. StubHub platforms include online ticket platform located at
www.stubhub.com and the StubHub mobile apps. Classifieds platforms include a collection of brands
such as Mobile.de, Kijiji, Gumtree, Marktplaats, eBay Classifieds and others.

II.

Constant pressure from the Long AMZN/Short Ebay Sentiment

Not only is Amazon's performance impressive on its own merits, but the company is also downright
crushing competitors such as eBay and Wal-Mart in terms of sales growth. eBay is still losing share to
Amazon and others, but it did deliver 4% Y/Y sales growth in Q1 after posting roughly flat sales growth in
Q4. Q2 revenue guidance of $2.14B-2.19B (4-6% growth in constant currency) is favorable to a $2.14B
consensus, while EPS guidance of $0.40-0.42 is below the $0.44 consensus. The Long AMZN/Short
eBay trade has wooed investors away from eBay (eBay short interest is 1.71 vs that of 1.29 of AMZN)

III.

Intrinsic Valuation

Transaction revenue fell short of expectation on a greater use of contra domestically, but this was offset
by a greater contribution from MSO/advertising. eBay's GMV rose just 1% Y/Y to $20.5B (compares with
~15% e-commerce industry growth), and its Marketplace transaction revenue fell 2% to $1.5B. However,
StubHub revenue rose 34% to $177M, classifieds revenue rose 15% to $186M, and non-transaction. In
the longer term, Ebay will focus on the engineering/product-driven shareholder value creation through:
1. Continued share repurchase activity as a result of strong FCF generation
2. eBay also has diversified its SEO efforts outside Google by focusing traffic efforts on sites such as
Facebook and Pinterest which should increase organic traffic over time

3. Targeting convenience and customer service via a site redesign has resonated with users. Mobile
performance has also been greatly improving, with the company processing ~$35 billion in mobile gross
merchandise value in 2015.
a. Base Case Valuation
Based on historial performance (chart below), Gross Merchandise Volume is expected to be at 4% yoy.
Free cash flow is targeted in the range of $2.2-$2.4 billion in 2016, which could be a solid increase over
2015 levels. In a forex neutral world, the company is still growing its revenue, atbeit at a modest level of
lower single digit growth.

Based on 3% growth in the first 3 years and 2% in the next 5 years, assuming constant margin historically
without any margin consolidation effects.

Assuming a FCF generation of $2100 MM per year and growth into perpetuity of -2.5% as AMZN scales
up their operations and seize market share from eBay. Discount rate is set at a conservative 6% to reflect
the median discount rate for: 1/tech median discount rate 2/expansion effect of AMZN 3/adjusted for low
long term interest rate.
We arrive at a conservative intrinsic valuation of ~$30/share for eBay.

b. Downside Case Valuation

Assuming Amazon to continue its tremendous expansion, the company sells its products at aggressively
low prices to gain market share versus the competition, and the strategy will continue thrive on the
revenue generation front. eBay will lose market share quicker in the downside scenario. We assumed a
constant decrease of 2% on revenue and 4% decline in revenue in maturity. We arrived at a share price
of $24/share.

IV.

Conclusion

eBay is a battleground stock for bulls and bears alike. Bulls like it as a classic pure value cash flow
generation play while bears priced eBay as a value trap stock. With a potential upside of 26% vs a
downside 9% implying a reward/risk ratio of 3:1, Axia Research views eBay as good value long with high
margin of safety. Furthermore, with low debt scale and a hot M&A market, eBay could be an attractive
acquisition target for tech companies (GOOG, AAPL) to deploy their massive cash balance and have a
piece in the growing giant e-commerce market.