eBay Inc. (EBAY): A Bull Case Built on Divestiture Discipline and Undervalued Niche Dominance

The market has been slow to recognize eBay's strategic transformation over the past five years. While critics focus on flat gross merchandise volume (GMV), the reality is eBay has engineered a leaner, cash-generative machine through disciplined asset divestiture and a renewed focus on high-margin niches. With a forward P/E of just 12x, a $2 billion annual free cash flow engine, and a fortress balance sheet, eBay presents a compelling contrarian opportunity.

The Divestiture Masterclass: Turning Non-Core Assets into Shareholder Gold

eBay's recent history is defined by three transformative divestitures that freed up billions in capital to fuel shareholder returns:

1. StubHub Sale (Feb 2020): Sold to Viagogo for $4.05 billion, netting $3.1 billion. This immediately enabled a quadrupling of its buyback program to $4.5 billion in 2020.
2. Classifieds Group (June 2021): Sold to Adevinta for $9.2 billion total consideration, including $2.5 billion cash. eBay retains a 44% equity stake in the combined classifieds leader.
3. Korean Marketplace (2021): Sold an 80% stake to Emart for $3 billion, retaining a 20% interest. This eliminated a low-margin distraction in a hyper-competitive market.

These moves have fueled an aggressive capital return program. Since 2020, eBay has returned over $15 billion to shareholders through buybacks and dividends. In Q1 2025 alone, $625 million in buybacks and $134 million in dividends were deployed, with $2.7 billion remaining in authorization. The dividend yield now stands at 1.5%, but with a track record of 8% annual dividend growth, this is a compelling income play.

Monetizing What Matters: Take-Rate Growth in a Flat GMV World

The obsession with GMV growth is misplaced. eBay's focus on take-rate monetization—the percentage of transactions eBay captures as fees—has quietly driven profitability. While GMV growth has been stagnant, fee revenue is rising due to:

• Recommerce Dominance: eBay controls ~35% of the $64 billion U.S. recommerce market (secondhand goods). This niche is growing 2x faster than retail overall, yet eBay's market cap reflects it as a relic of the past.
• Premium Services: Promoted Listings, eBay Motors, and managed payment systems now account for 40% of revenue, with margins 50% higher than traditional listings.
• Data-Driven Pricing: Machine learning algorithms dynamically adjust fees based on seller profitability, boosting take-rates without harming liquidity.

Even with flat GMV, eBay's net revenue grew 8% CAGR since 2020, supported by a 220 basis point expansion in take-rate. This model is underappreciated in a market fixated on top-line growth.

Why the Valuation Is a Bargain

At current prices, eBay trades at 12x forward earnings, a 35% discount to its five-year average. This undervaluation persists despite:

• $2 Billion Annual Free Cash Flow: Steady and growing, with no capex-heavy investments needed post-divestitures.
• Balance Sheet Strength: $4.8 billion in net cash as of Q1 2025, enabling further returns or opportunistic acquisitions.
• Recommerce Tailwinds: The secondhand market is projected to hit $80 billion by 2027, with eBay's ecosystem advantages (trust, payment systems, logistics) hard to replicate.

Risks and Counterpoints

Critics argue eBay is a "zombie stock" with no growth. But this ignores:

1. Margin Resilience: Operating margins hit 24% in 2024, up from 18% in 2020, proving structural cost discipline.
2. Dividend Safety: The 1.5% yield is backed by a dividend coverage ratio of 2.1x, comfortably sustainable.
3. Buyback Impact: At current prices, the remaining $2.7 billion buyback authorization could reduce shares outstanding by ~6%, boosting EPS.

Investment Thesis: Contrarian Buy at 12x Earnings

eBay is a cash-generating machine in a niche market that's growing faster than the overall economy. With a valuation that doesn't price in recommerce dominance or take-rate upside, this is a rare value proposition in today's market. Investors should buy the dip below $80, with a 12-18 month target of $110+ as the market catches up to the bull case.

Actionable Idea: Accumulate EBAY on weakness. Pair with a long call option for leverage if risk tolerance allows. Monitor free cash flow conversion and take-rate metrics for catalysts.