After stalling out a few times in the second half of 2020, eBay (NASDAQ:EBAY) is looking like a 2021 winner. Shares are up more than 12% YTD and it hasn’t even been a month.
eBay is set to report its Q4 earnings on Thursday. A big upside surprise seems unlikely for Q4, but eBay looks primed for an outstanding Q1 2021… And it doesn’t appear that Wall Street has factored it in.
Stimulus Checks Are Tailwind for eBay
The $1,200 stimulus checks that were sent out last spring were a tailwind for a lot of businesses, but for some more than others. A company like Tesla (NASDAQ:TSLA) , for example, didn’t see demand surge when the checks started hitting Americans’ accounts. A $1,200 stimulus check is around 2% of the price of a Tesla, after all.
But there are countless things you could buy on eBay for $1,200. Or a lot less. On the Q3 earnings call, eBay management talked about the impact of the first round of checks. “Growth was at its peak in July and then moderated through August and September driven in part by the wind down of government stimulus payments even as residential mobility remained relatively constant.”
The trading card market, for example, caught fire over the summer of 2020. That was no coincidence.
With $600 stimulus checks getting sent to Americans this month, and $1,400 checks set to be approved any day now, eBay will have a nice tailwind in Q1 2021.
Wall Street Hasn’t Priced in the New Stimulus Checks
Over the last 30 days, eBay’s consensus price target has increased by just 4 cents a share. Thirty days ago, the second COVID-19 stimulus bill was sitting on then-President Trump’s desk and nobody knew if/when he would sign it.
As we sit here today:
- Trump has signed the bill, putting the $600 checks in the mail.
- Democrats won both of the Georgia Senate elections, giving the party complete control over the Presidency, House, and Senate.
If eBay raises its Q1 2021 guidance, the stock could get several upgrades in short order. The current consensus price target of $60.68 already gives eBay more than 7% upside from current levels. If it gets closer to $65, shares could react by quickly jumping a couple of points.
What Will eBay Say About South Korea Business?
eBay was in the news last Tuesday when the company said it is looking at strategic options for its South Korea e-commerce business – a fancy way of saying that eBay may sell the South Korea operations.
This isn’t the first time that eBay has floated the idea; a Seoul-based newspaper reported that eBay was looking to sell its South Korean unit in early March 2020. A deal never came to fruition, though the pandemic – which few predicted would have such a major impact at the time – may have had something to do with it.
With Coupang, a rival in the Korean e-commerce market, possibly nearing an IPO, eBay seems ready to exit Korea. eBay could take the Q4 call as an opportunity to talk about potential deals for its Korea business, which could net the company around $5 billion. The South Korea business makes up around 11% of eBay’s annual revenue, so this is an important decision for the company.
If eBay sells its South Korea business, it wouldn’t be the first large business that it has sold in the last 12 months. eBay sold StubHub in February 2020 for around $4 billion in cash. Five months later, the company sold its classified business to Adevinta for around $9.2 billion.
Under new CEO Jamie Iannone, eBay has prioritized its core business. On the Q2 call, he said that the Adevinta deal “allows us to dedicate our day-to-day focus on marketplace-to-marketplaces.” Iannone has identified several areas of improvement for eBay – these sales will only make it easier for him to deliver.
How Should You Play eBay?
eBay shares are nearing resistance in the high $50s ahead of Q4 earnings. Typically, that would make you want to stay on the sidelines.