eBay Inc. (EBAY), which is based in San Jose, Calif., operates marketplace platforms that connect buyers and sellers worldwide. The company’s marketplace platforms include its online marketplace at ebay.com and a suite of eBay mobile apps. In comparison, Walmart Inc. (WMT) is the world’s largest retail chain. The company operates through three segments: Walmart U.S.; Walmart International; and Sam’s Club.
Demand for online and in-person shopping is increasing rapidly due to improving consumer sentiment and a recovering job market. In the first half of 2021, e-commerce sales hit $408.51 billion, up 21.9% year-over-year, while offline sales increased 15.4% year-over-year in the same period. With persistent demand, the retail industry should witness a substantial increase in sales in the coming quarters also. This should bode well for both EBAY and WMT, considering their high market shares.
EBAY has gained 40.2% in price over the past six months, while WMT has returned 17% over this period. Also, EBAY’s 52.3% year-to-date gains compare with WMT’s 3.5% returns. Furthermore, in terms of the past year’s performance, EBAY is the winner with 44% gains versus WMT’s 3.3%.
But which stock is a better buy now? Let’s find out.
On August 24, WMT announced a new line of business, Walmart GoLocal, that extends its expertise in delivering goods to customers and businesses. This is in line with the company’s strategy of diversifying its revenue streams and profit pools.
On August 12, EBAY introduced first-of-its-kind luxury handbag machines, bringing a selection of designer handbags from the marketplace directly to the hands of shoppers. With the luxury resale market seeing exponential growth in recent months, the company should attract more customers with this offering.
Recent Financial Results
EBAY’s net revenues increased 14.2% year-over-year to $2.67 billion in its fiscal second quarter, ended June 30. Its gross profit stood at $2.00 billion, up 4% from the same period last year. Its net income grew 1,338.9% from its year-ago value to $10.73 billion. The company’s EPS increased 1,393.3% year-over-year to $15.68.
WMT’s total revenues increased 2.4% year-over-year to $141.05 billion in its fiscal second quarter, ended July 31. Its net sales grew 2.2% from its year-ago value to $139.87 billion, while its operating income improved 21.4% year-over-year to $7.35 billion. For the six months ended July 31, the cash and cash equivalents balance rose 35% from the same period last year to $22.88 billion.
Past and Expected Financial Performance
EBAY’s revenues and EBITDA have grown at CAGRs of 3.1% and 5.7%, respectively, over the past three years. Analysts expect EBAY’s revenue to increase 1.6% in the current year and 5.4% in the next year. The company’s EPS is expected to grow 4.7% in the current quarter, 15.5% in the current year, and 12.7% in the next year. Moreover, its EPS is expected to grow at an 11.9% rate per annum over the next five years.
In comparison, WMT’s revenues and EBITDA have grown at CAGRs of 3.5% and 6%, respectively, over the past three years. Analysts expect the company’s revenue to increase 1.1% in the current year and 2.7% in the next year. The company’s EPS is expected to grow 3.7% in the current quarter, 15.1% in the current year, and 4.8% in the next year. Moreover, WMT’s EPS is expected to grow at an 8% rate per annum over the next five years.
EBAY is more profitable, with gross profit and EBITDA margins of 73.90% and 31.06%, respectively, compared to WMT’s 25.10% and 6.87%.
However, WMT’s ROA and ROTC of 7.36% and 11.70%, respectively, compare with EBAY’s 7.17% and 10.81%.
In terms of forward EV/Sales, EBAY is currently trading at 4.02x, which is 79.6% higher than WMT, which is currently trading at 0.82x. Also, EBAY’s 4.59 trailing-12-months Price/Sales ratio of 4.59 is 91.9% higher than WMT’s 0.37.
Thus, WMT is relatively affordable.
WMT has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. EBAY, in contrast, has an overall C rating, which translates to Neutral. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
WMT has a Stability grade of A, which is consistent with its relatively low beta of 0.48. In contrast, EBAY has a 1.10 beta, which justifies its Stability grade of C.
WMT has a B grade for Value, while EBAY has a grade of C on this front. This is justified because WMT’s 11.84 trailing-12-months EV/EBITDA ratio is 6.5% lower than the 12.66 industry average. In comparison, EBAY’s 11.81 trailing-12-months EV/EBITDA multiple is 8.5% higher than its 10.88 industry average, consistent with its grade.
Both EBAY and WMT are well-positioned to witness a significant increase in sales. However, we think WMT’s bigger customer base and lower valuation make it the better investment here.
Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Grocery/Big Box Retailers industry here. Also, click here to view the top-rated stocks in the Internet industry.
Want More Great Investing Ideas?
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More…