As part of a new series, each week we typically conduct a DCF on one of the companies in our screens. This week we thought we’d take a look at eBay Inc (EBAY).
Profile
eBay operates one of the largest e-commerce marketplaces in the world, with $74 billion in 2022 gross merchandise volume, or GMV, rendering the firm a top 10 global e-commerce company. eBay generates revenue from listing fees, advertising, revenue-sharing arrangements with service providers, and managed payments, with its platform connecting more than 132 million buyers and roughly 20 million sellers across almost 190 global markets at the end of 2022. eBay generates just north of 50% of its GMV in international markets, with a large presence in the U.K., Germany, and Australia.
Recent Performance
Over the past twelve months the share price is up 4.20%.
Inputs
- Discount Rate: 8%
- Terminal Growth Rate: 2%
- WACC: 8%
Forecasted Free Cash Flows (FCFs)
| Year | FCF (billions) | PV(billions) |
| 2023 | 2.123 | 1.97 |
| 2024 | 2.123 | 1.82 |
| 2025 | 2.123 | 1.69 |
| 2026 | 2.123 | 1.56 |
| 2027 | 2.123 | 1.44 |
Terminal Value
Terminal Value = FCF * (1 + g) / (r – g) = 36.09 billion
Present Value of Terminal Value
PV of Terminal Value = Terminal Value / (1 + WACC)^5 = 23.46 billion
Present Value of Free Cash Flows
Present Value of FCFs = ∑ (FCF / (1 + r)^n) = 8.48 billion
Enterprise Value
Enterprise Value = Present Value of FCFs + Present Value of Terminal Value = 31.93 billion
Net Debt
Net Debt = Total Debt – Total Cash = 6.72 billion
Equity Value
Equity Value = Enterprise Value – Net Debt = 25.21 billion
Per-Share DCF Value
Per-Share DCF Value = Enterprise Value / Number of Shares Outstanding = $46.96
Conclusion
| DCF Value | Current Price | Margin of Safety |
|---|---|---|
| $46.96 | $44.36 |
5.52% |
Based on the DCF valuation, the stock is currently undervalued. The DCF value of $46.96 per share is higher than the current market price of $44.36. The Margin of Safety is 5.52%.
It is important to note that this valuation is based on a number of assumptions, and these assumptions could change in the future. This valuation is meant to be a back-of-the-envelope analyse that could be used as a starting point in a much more thorough valuation process. As a result, it is important to do your own research before making any investment decision.
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