EBay Earnings: Focused Categories Again Outperform, but Full Turnaround Lacks Near-Term Catalyst

Narrow-moat eBay reported solid quarterly earnings, with $2.5 billion in sales and $1.11 in non-GAAP EPS aligning with our top-line forecast ($2.5 billion), but healthily edging our $0.96 EPS estimate. The firm's focused category investments continue to bear fruit, with the operator's large parts and accessories business achieving e-commerce market growth rates more quickly than expected, helping to drive eight points of outperformance between focused categories and the rest of the marketplace. Despite the quarterly strength, we expect to lower our $57 fair value estimate by a mid-single-digit percentage, with higher interest rates and softening retail sales likely to affect some of the more discretionary verticals on the eBay platform like consumer electronics and home and garden. This view is consistent with Morningstar's forecasts for slowing growth in real U.S. consumption expenditures, which we pencil in at just 1.8% and 1.4% in 2023 and 2024, respectively. Shares look attractive, trading at a 17%-18% discount to our revised intrinsic valuation even after a small pop (3%) in afterhours trading.