Investors in eBay (NASDAQ:EBAY) celebrated the company’s recent fourth-quarter report that paired surging sales volumes with higher profits, earnings, and cash flow. The online marketplace just finished a fantastic 2020 that saw more volume growth than in the prior seven fiscal years combined.
And if management has its way, those records will just mark the beginning of a long stretch of improvements for the business. Let’s look at three factors that have CEO Jamie Iannone and his team bullish about 2021.
1. Sneakers are booming
eBay’s holiday season growth blew past expectations, yet the company showed off its flexibility compared to other retailers. It won market share in niches like certified pre-owned merchandise and luxury watches. But management said in a conference call with Wall Street analysts that the sneaker segment demonstrated the path toward additional growth.
The volume of sales for sneakers costing over $100 more than doubled in the fourth quarter. And these shoppers on average spent a total of $2,500 on eBay over the course of the year, most of it in other categories. In other words, the buying experience for premium sneakers supported additional purchases outside of that niche. “Sneaker buyer behavior is a great example of the power of the eBay platform,” Iannone said.
2. Margins will rise
A key part of the bullish investing thesis for eBay is the fact that its asset-light selling approach generates higher profits than peers like Etsy and Amazon. That gap likely widened over the holidays as operating margin jumped to 23.6% from 21.4% a year ago.
Data by YCharts. TTM = trailing 12 months.
eBay’s margins got plenty of help from the booming sales, but another major contribution came from rising seller fees that were supported by increased demand for promoted-listing advertisements.
The good news is that management sees room for further gains here, which means investors might see significantly higher earnings from the platform over time. “We had a very strong year of cash generation,” CFO Andy Cring said.
3. Primed for a big year
eBay’s quarterly reports will start going up against difficult comparisons by late in the first quarter. That’s when sales growth began soaring in response to lockdowns driven by the pandemic’s spread in 2020. eBay still has a good shot at growing sales in 2021, but investors should brace for volatility in reported sales movements over the next few quarters.
The longer-term outlook is bright with management expecting to push operating margin to at least 30% of sales by next year. Cash should surge over that time, supporting investments in growth initiatives while leaving plenty of resources to direct back to shareholders in the form of dividends and stock buybacks.
Altogether, eBay is in a great position to win market share in a quickly expanding industry while boosting profitability. That powerful combination means you’re likely to be happy to own this stock in 2021 and beyond if you’re a growth-focused investor.
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