Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Crazy Stocks

Can eBay cash in on Coronavirus?

eBay (NASDAQ: EBAY) could be in a good position to cash in on Coronavirus. For example, eBay is offering a special “Up & Running” program for small businesses trying to move online.

Through Up & Running closed brick and mortar businesses three free months of a basic tier subscription, The Verge reveals. The hope is to get small merchants selling on eBay during the pandemic.

In addition, eBay will cover the final value fee for the first 500 items businesses sell through Up & Running. eBay launched Up & Running on April 1 2020, to cash in on hysterical headlines about COVID-19.

eBay is a profitable Company

eBay Inc. (NASDAQ: EBAY) was a very profitable company before Coronavirus. For instance, eBay made a quarterly gross profit of $2.171 billion on revenues of $2.821 billion in the quarter ending on 31 December 2019.

Consequently, eBay reported a quarterly operating income of $619 million and a quarterly common net income of $556 million on New Year’s 2019. Thus, eBay is a profitable company.

Impressively, reported a quarterly operating cash flow of $811 million on 31 December 2019. However, eBay reported a quarterly ending cash flow of just $87 million on the same day. Thus, eBay runs a lot of cash through its till but keeps little of that cash.

Yet, eBay had $2.825 billion in cash and short-term investments on 31 December 2019. I think that makes eBay a cash rich company. That number is impressive for a company that had just $18.174 billion in assets on 31 December 2020.

Thus eBay has a history of making money and it has an opportunity to grow its business during Coronavirus. However, there is no guarantee any of the businesses closed by Coronavirus could make money on eBay.

Can eBay Cash in on Digital Liquidation Sales?

However, eBay could make money from those businesses. To explain, I think many businesses will use eBay to hold digital liquidation sales or auctions to raise a little cash.

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.

For example, Macy’s could call back some laid off employees and have them list, sell, and ship merchandise in closed stores. That could be a great deal for bargain hunters because Macy’s has 871 stores full of clothing, household goods, and fashion accessories and bills to pay.

Digital liquidation sales could be lucrative for eBay because they could generate huge amounts of cash. eBay could make money from the fees on all those sales.

Can eBay cash in on Price Gouging?

Additionally, eBay could profit as Amazon (NASDAQ: AMZN) throws price gougers off its platform. Notably, CNBC reports Amazon removed 530,000 “high-priced offers,” and suspended 2,500 seller accounts to “stop price gouging.”

In the long run, the price gougers still have stuff to sell. Hence, many of them will move to eBay and keep right on selling. Moreover, there are many people with money who still want to pay the high prices.

Unlike eBay, Amazon has a strong incentive to remove high-priced items because of Jeff Bezos’ dedication to low-prices. To explain, Bezos follows a classic deep-discounting business strategy of charging the lowest price possible. Obviously, Amazon cannot advertise the lowest prices when gougers are abusing its marketplace.

On the other hand, being an auction site, eBay can charge high prices and not affect its business. However, eBay will need to tread carefully to avoid attacks from hysterical politicians and overzealous regulators.

Is eBay a Value Investment?

I think Mr. Market underpriced eBay at $31.64 a share on 7 April 2020. Yet I consider eBay (NASDAQ: EBAY) a cash-rich company with a large margin of safety.

Plus, Statista estimates that eBay had 183 million active buyers worldwide in 4th Quarter 2019. Thus, eBay has a huge platform with many buyers.

Moreover, eBay pays a dividend, unlike Amazon. eBay paid a 16₵ dividend on 28 February 2020 up from 14₵ on 29 November 2019. Overall, eBay offered investors a 64₵ annualized payout, a 2.05% dividend yield, and a payout ratio of 21.56% on 7 April 2020.

If you are looking for a cheap dividend stock with a lot of growth potential. I think eBay is worth investigating. I consider eBay a good cheap alternative to the overpriced Amazon.

Additionally, eBay is an unsexy company that a lot of investors overlook. Thus, I consider eBay a value investment for the Coronavirus age.