eBay Inc.

EBAY Details

eBay Inc. (NASDAQ: EBAY) is a leading commerce company providing global marketplace platform to both buyers and sellers. Further to maintain the continuity of traffic on its platform, eBay provides various compensations in the form of discounts on fees, discounts on items sold, coupons, rewards, etc. The company currently deals only in one segment "Marketplace", which includes its online marketplace located at “www.ebay.com”. As of May 06^th 2021, the company’s market capitalization stood at USD 40.07 billion.

New payment method for High Value Watches: As of April 26^th 2021, the company announced the addition of an escrow payment option for luxury watches. It will provide an additional level of security and convenience mechanism to both buyers and sellers of high-end watches. In September 2020, the company launched its “Authenticity Guarantee” service, which helped the company sell more than 7000 luxury watches, priced upwards of USD 10,000. With the introduction of escrow payment service, the company wants to simplify the process of buying and selling high-value collectible items.

Robust Q1FY21 Result: The company reported a massive increase of 42% in net revenue to USD 3.02 billion in Q1FY21 (ending March 31, 2021) as compared to USD 2.12 billion in Q1FY20 (ending March 31, 2020). The company reported a strong increase of 35.21% in Gross Profit to USD 2.20 billion in Q1FY21 as compared to USD 1.62 billion in Q1FY20. The net cash flow from operations stood at USD 1.04 billion in Q1FY21 as compared to that of USD 0.59 billion in Q1FY20.

Key Risks: EBAY faces intense competition in its online businesses due to the rapid increase in virtual opportunities. The company’s biggest competitors are platform businesses such as Alibaba, Amazon, Apple, Facebook, and Google. Some current and potential competitors have a longer operating history, a larger client base, and greater brand recognition. Any decrease in demand for the company’s marketplace may have an adverse effect on the operational and financial affairs of the company.

Outlook:

Q2FY21 Guidance (Source: Company earnings presentation, April 28^th 2021)

 Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

EBAY Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Stock Recommendation: EBAY has increased by only 6.79% in the past nine months and is currently leaning towards the higher end of the 52-week range of USD 40.19 to USD 65.11. We have valued the stock using the EV/Sales based relative valuation methodology and arrived at a target price of USD 65.31. Considering the increased demand in online shopping necessitated by the pandemic, strong margins, and robust fundamental growth, we recommend a “Buy” rating on the stock at the closing price of USD 58.82, up by 1.00% as of 06^th May 2021.

Activision Blizzard, Inc.

ATVI Details

Activision Blizzard, Inc. (NASDAQ: ATVI) is engaged in the development and publishing of interactive games and services. The company operates in three segments namely, 1) Activision Publishing, Inc. generates earnings from the sale of the full game and in-games, as well as licensing software to third-party firms that distribute Activision products. Call of Duty is the franchise product of Activision. 2) Blizzard Entertainment, Inc. generates income from the full game and in-game sales, subscriptions as well as selling licensing software to third-party firms that distribute Blizzard products. World of Warcraft, Hearthstone, Diablo, and Overwatch are some of the key products of Blizzard. 3) King Digital Entertainment generates revenues from in-game sales and in-game advertising on the mobile platform. Candy Crush is the key franchise product of King Digital Entertainment. As of 06^th May 2021, the company’s market capitalization stood at USD 72.28 billion.

Nine Years old Patent Lawsuit: Activision Blizzard won a 9-year-old Patent lawsuit filed against it by Worlds Incorporated. The US district court judge has dismissed the case given the abstract nature of the patents.

Return of World Championship tournament: As of April 14^th, 2021, the company announced the return of Call of Duty: Mobile World Championship tournament from June 03^rd 2021. Participants will play against each other for the total prize money of USD 2 million.

Q1FY21 Results: The company reported a 27.23% increase in net revenue to USD 2.27 billion in Q1FY21 (ending March 31, 2021) as compared to USD 1.78 billion in Q1FY20 (ending March 31, 2020). The company reported an increase in net income to USD 619 million in Q1FY21 as compared to that of USD 505 million in Q1FY20. The operating cash flow stood at USD 844 million in Q1FY21 as compared to USD 148 million in Q1FY20.

Key Risks: The company’s largest customers are Microsoft and Sony which contributes 28% and 21% of its consolidated gross receivables as of FY20. They have contributed 11% and 18% of the consolidated gross receivables as of FY19. Partial or total loss of business from major customers might result in a considerable decline in revenues for the company. It could also impact the financial as well as operational health of the company.

Outlook:

Guidance (Source: Company presentation, Q1FY21)

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

ATVI Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Stock Recommendation: ATVI has surge by 0.37% in the past three month and is currently leaning towards the higher end of the 52-week range of USD 66.59 to USD 104.53. We have valued the stock using the EV/Sales based relative valuation methodology and arrived at a target price of USD 101.32. Considering only a mild rise in the stock price in the past three months, huge product portfolio, and a strong financial performance, we recommend a “Buy” rating on the stock at the closing price of USD 93.03, up by 3.27% as of 06^th May 2021.