It’s about that time of year when investors start trying to determine which companies will outperform expectations in the year ahead. Get ready to hear the term “pent up demand” in 2021 as much as you’ve heard “new-normal” in 2020.
There are a lot of excellent companies that will benefit from pent up demand, but eBay (NASDAQ:EBAY) isn’t one of them. Nevertheless, eBay shares have a chance to turn into one of the best investments of 2021.
Few are excited about eBay. It’s trading at less than 15x forward earnings. But don’t overlook it, and make the same mistake that almost everyone else is making.
CEO is Pointing the Ship in the Right Direction
One of the biggest reasons why I’ve been bullish on eBay for much of 2020 is the hiring of CEO Jamie Iannone back in April. This guy gets it.
You see, eBay had been letting other e-commerce companies eat its lunch for years. But that’s coming to an end under Iannone’s watch—more on watches in a bit.
Elevated Experience for Certified Refurbished Product
What are the biggest things stopping people from buying refurbished items on eBay, real or imagined?
There’s the fear of a nightmarish return process and the possibility that the item falls apart after the return window, to name a couple.
eBay is taking steps to remedy these issues. On the Q3 earnings call, Iannone pointed to the launch of eBay’s “new elevated experience for certified refurbished product.” The program includes “a two-year warranty, eBay money back guarantee and hassle-free 30-day returns.”
Iannone sees “Tens of billions of dollars in untapped potential in the global refurbished market.” That’s a large opportunity for a company that, for example, enabled $25 billion in marketplace gross merchandise volume (GMV) in Q3.
Back in June, I identified eBay’s returned merchandise opportunity. It excites me to see them taking concrete steps to capitalize on it.
eBay is Authenticating Sneakers and Watches
Another issue that eBay has battled in the past is the questionable authenticity of some high-dollar items. Iannone has—unsurprisingly—taken steps to solve this problem:
Collectible sneakers have become one of the hottest items on eBay, with teenagers and twenty-somethings across the country flipping sneakers as a side hustle.
But who wants the stress of buying a $500 pair of shoes, and wondering whether they’re real or fake? eBay has come to the rescue here, authenticating collectible sneakers above $100 with a “team of independent third-party industry experts.”
eBay was already seeing improvement in this category—50% GMV growth year-to-date—before launching the authenticity guarantee.
Watches can get extremely expensive, as any watch collector would be quick to tell you. So, eBay’s new program that authenticates watches selling for $2,000 or more is going to apply to a decent percentage of the market.
On top of that, eBay introduced an escrow service for high-dollar watch transactions, which is already paying off with a “a modest increase in supply and higher average selling prices.”
Trading Card Market is Still on Fire
Collectors Universe (NASDAQ:CLCT) has been one of my favorite plays since June. And it’s mostly because of the trading card market.
While Collector’s Universe authenticates and grades the cards, eBay handles the buying and selling of them. You may be sensing a theme: Collectibles—sneakers, watches, and trading cards—are incredibly popular these days.
eBay, with a platform that is designed to sell unique items, is well-positioned to handle the lion’s share of online collectible transactions.
The Market is Casting eBay Aside
eBay reported its Q3 earnings a little less than a month ago. I’m not going to sit here and say that it was an amazing quarter—it wasn’t—but I felt that the market looked back more than it looked forward.
Q3 growth was modest and Q4 guidance was a little lower than you’d like to see, but the 7.4% sell-off was overdone.
Keep a Close Eye on eBay
You may have expected me to tell you to buy eBay as soon as you finish reading, but shares could face resistance in the near-term, so I’d look for a better entry point.
I wouldn’t insist on a re-test of the lows—you don’t want to get left behind—but I’d look for a pullback to around $48 before getting into eBay.
Keep a close eye on eBay, however. You don’t want to miss an opportunity to get in.