In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche
EBay could profit from that if desperate retailers flood its platform with cheap merchandise. In particular, department store operators; such as Macy’s (NYSE: M) and Kohl’s (NYSE: KSS), that have hundreds of closed stores and tons of merchandise to unload could turn to eBay for fast cash.
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Since its founding, eBay (NASDAQ: EBAY) has acquired the staggering 59 companies overall. Some of these companies are also in the online auction industry, such as iBazar and Tradera. Some of eBay’s biggest buys were Skype in 2005 and PayPal in 2002.
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The only real threat to eBay will be aging and dying off of America’s 74 million or so Baby Boomers (people aged 52 to 72). The Boomers are eBay’s main customers; their insatiable appetite for collectibles and kitsch drove its growth and recent profits. As the number of Boomers declines, eBay’s revenues and income are likely to fall.
One potential danger that eBay might face is a growing glut of collectibles and antiques on the market; as Boomers or their heirs sell and find no buyers. News articles indicate that Boomer’s kids; Generation X and Millennials, have little or no interest in a lot of their parents’ possessions.
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In particular I think eBay is in a great position to go acquiring. There are some interesting potential acquisitions for it out there; including Etsy (NASDAQ: ETSY) which had a market cap of $1.876 billion on August 9, 2017. Another is Overstock.com (NASDAQ: OSTK) – the big O had a market capitalization of $456.26 million on August 9, 2017.
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The real culprit in the death of the Great American Department Stores is changing times. Since there is no way to change that investors should stay away from this sector, perhaps far away.
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There is also one very ugly number in eBay’s financials and that’s cash from operations. Over the course of 2016 the amount of cash flowing through eBay’s till fell by $1.207 billion, and that occurred in eBay’s first year without PayPal.
eBay reported $4.033 in cash from operations at the end of fourth quarter 2015, and $2.826 billion in cash from operations on December 31, 2016. This is worrisome because all the additional revenue growth does not seem to be translating into additional cash.
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These are the earnings reports to watch because they will show us what to expect from the entire sector. Massive growth in Amazon’s revenues will indicate that the pain and disruption in brick and mortar retail is far from. Continued revenue growth at PayPal and Facebook will demonstrate that fintech and social media can still pay off.
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Such numbers might be fine for a pre-IPO unicorn, but they’re horrible for a publically traded company. To me at least Etsy looks like a circa 1999 dot.com company that is ready to go crash. All it would take is one negative earnings report or some really bad news to send Etsy spinning into the death spiral.
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Amazon is an incredible success story and a fast growing money machine but it is still a lousy investment. There are better ecommerce stocks out there that cost less and offer better returns.
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Naturally this piques the interest of value investors, if eBay is an unfashionable company that makes money; it meets some classic Ben Graham criteria for a value bargain. That means we will need to ask the all-important question here: is eBay making money?
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