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We like shares of eBay (EBAY) on a 9% pull back following the recent earnings. The company beat on both the top and bottom line, but the earnings forecast for Q3 was a few cents below consensus. However, we always like EBAY in the second half of the year anyway. They have a number of indicatives going on. The stock does not move much, but it is actually a stock that many day traders like to play intraday on options for a few pennies or nickels on contracts a day, because this is a low beta stock. However, we think you can build a position the next two points or so down, and scalp a sale a few points higher. It is a SIMPLE trade, and likely to be reliable, with little risk. In fact the biggest risk here would be a broader market selloff but so far, no signs that is going to happen. So we are entering EBAY for what we think will be a several month trade, unless something drastic happens. We will likely play some options AND commons.

So the stock is pretty low beta. Generally we like stocks that move a bit more, but at these valuations, frankly, its very tough for new money to enter stocks that have moved 40-50 even 100% plus! This is a simple easy trade on a range bound stock: So, barring an October 2022 like selloff (it is possible) we expect this play to work out:

The play

Target entry 1: $43.85-$44.05 (35% of position)

Target entry 2: $42.45-$42.65 (65% of position)

Target exit: $47

Stop loss $39

Options: We think you can play the October $45 strike, and trade it a bit. Right now they go for about $1.65-$1.70. Any sign of green should net you some pocket change. The stock does not move that much, so you can take advantage of 0.3-0.6% moves in a day. Requires work. We cannot guide on it, but you can make a bundle doing that. However, for a trade, consider that $45 strike at $1.70 and if it pulls back to $1.30 add again and manage the position until you have a 20% return. You would need the stock at about $45.55ish in a few weeks to make that on the first strike, and if you do get a second leg, probably $45. Depends on the time. But these are cheap calls. Easy bet to make that the stock finds footing soon and rebounds. I do think it heads to the high $40s again in a few months however, barring general market chaos Generally a good name as we get toward holiday season.

Discussion

In Q2, we believe the company exceeded expectations on all key metrics while investing in sustainable growth. Ebay remains a top global marketplace to buy and sell through a tech-led reimagination. Q2 was another solid quarter for eBay. Their GMV, revenue and EPS all exceeded expectations. They all came in at or above the high-end of guidance ranges despite ongoing macroeconomic uncertainty.

Revenue was $2.5 billion, up 5% on an as-reported basis and up 6% on a currency neutral basis while GMV (gross merchandise volume) was $18.2 billion, down 2% on an as-reported basis and down 1% on a currency neutral basis. Net income from continuing operations was $172 million, or $0.32 per diluted share but the adjusted numbers beat expectations. Adjusted net income from continuing operations was $555 million, or $1.03 per diluted share. Operating margin was 20.4% and 26.9%, respectively. The company also generated $605 million of operating cash flow and $492 million of free cash flow from continuing operations. But they crushed it.

Keep in mind this company is also shareholder friendly. It conducted in Q2 alone $250 million of share repurchases and $133 million was paid in cash dividends.

Now the yield is a paltry 2%, but it is something while you wait. Of course with the history you see that it has raised its dividend year after year, and done quite well. 

The company is also turning to AI. Earlier this, eBay acquired Certilogo, an AI-powered authentication provider for fashion. This acquisition further solidifies eBay as a top player.  eBay is beta testing a generative AI tool on its mobile app that helps sellers create detailed item descriptions based on the title or keywords they enter.

Also, coinciding with the premiere of "Air," a new movie set in 1985 about the origin story of the Air Jordan 1, eBay partnered with several top sneaker sellers to host The '85 Shop in Chicago. This retail pop-up store featured a complete collection of original Air Jordan 1s in every colorway, a never-before-released Air Jordan 1 sample and other iconic 1980s sneakers.

So there are some good things happening here. 

So why is the stock down? It is down because they guided for revenue at high end of consensus, HOWEVER, their EPS guide at the midpoint was $0.96-$1.01; consensus was $1.02. So this $0.04 difference is driving the 9% drop. Seems overdone. Below is the guidance. 

We think shares will get bought up after a wave of selling. Keep in mind, the company's total repurchase authorization remaining as of June 30, 2023 was approximately $2.3 billion.  That buying power will keep a floor, or help to, under the stock. 

The value is average, but on an earnings basis is solid. The company is also has average growth

So, an average stock, that does not move much, has average value and growth metrics.

Folks, that is, combined with the lower beta, and options traders cup of tea. Narrow bid asks that only need the stock to move slightly to scalp a few pennies here and there. But, we see upside into the fall, as the company incorporates more AI to boost sales and retain customers.

There is also one more place for growth that is underappreciated, and that is in the trading card space. This is a HUGE industry. Two weeks ago they started a new trading card submission service for the eBay vault. Collectors, investors and professional sellers can now submit eligible graded cards valued at $250+ directly to eBay's state-of-the-art facility and digital marketplace. The new service expands eligibility for the eBay vault beyond cards directly purchased on the marketplace, and also covers graded autograph, relic, and patch cards. This helps up its place in the real competitive trading card market.  Trading cards are increasingly viewed as an alternative asset class, and the ability to buy, list, sell and transfer ownership instantly is crucial for collectors who want to maximize price realization and build portfolios. With eBay's new submission service, collectors can easily send items to the eBay vault, for specialized long-term storage, expert third-party authentication, and streamlined transactions.  We think this will generate some strong revenue frankly, with an ability to cross-sell.

The balance sheet is in good shape, with very little leverage, no short-term debt, and long-term debt of about $7 billion, but over $5.3 billion in cash. 

All things considered, this is one of my more boring stocks to recommend, but it actually models quite well for the probability of success on the trade at the prescribed entry points. Those of you trading options can look to day trade this thing for a few pennies or nickels at a time and do well because sudden sharp moves are so rare. 

Take advantage of the weakness and put your bid in for some EBAY.

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