Pre-Earnings, Which Online Marketplace Stock Is a Better Pick?

Online marketplaces are increasingly facing competitive pressures, both online and offline. These marketplaces must work to attract both buyers and sellers to their platforms. To add to their woes, macroeconomic uncertainty, including higher shipping costs and staff shortages, have only compounded the problem for online marketplaces like eBay.

Against this background, let us compare two online marketplaces using the TipRanks stock comparison tool that are set to announce their Q4 results this week, eBay and The RealReal. We will also examine what Wall Street analysts are saying about these stocks.

eBay is an online marketplace that connects buyers and sellers in 190 markets around the world. The company is expected to announce its Q4 results on February 23.

eBay is currently going through a transition period, as it has sold several business segments over the past two years, including StubHub, Classifieds, and EBAY Korea. The company has made it clear that it intends to concentrate more on its Marketplace platform.

The company’s business strategy is to use technology to improve the marketplace experience for its customers and to drive growth in Gross Merchandise Value (GMV).

In Q4, eBay projected revenues to range between $2.57 billion and $2.62 billion, an organic year-over-year growth rate between 3% and 5% on a currency-neutral basis. The company anticipates earnings to range from $0.97 per share to $1.01 per share, versus the consensus estimate of $1.

This outlook indicates that the company anticipates its revenue growth rate to slow down in Q4 from a year-over-year growth rate of 10% in Q3 on a currency-neutral basis. The company’s management stated on its Q3 earnings call that its revenue outlook for Q4, “Implies GMV is down low teens on an FX-neutral basis versus last year.”

This GMV outlook is also echoed by Robert W. Baird analyst Colin Sebastian, who expects that GMV will fall in the first half of this year, “Before flattening or growing modestly Y/Y [year-over-year] in 2H22.”

Interestingly, eBay measures its footprint in the addressable market, according to the GMV. eBay defines GMV as all paid transactions on its platforms inclusive of shipping fees and taxes.

Meanwhile, Sebastian, is positive about eBay’s managed payments business and expects that this business will significantly boost its profits and revenues over the span of the next two to three years. Indeed, in Q3, 90% of its on-platform GMV was processed through the Managed Payments platform.

Managed Payments is eBay’s own payment platform that processes payments for purchases through eBay.

Moreover, the analyst is upbeat about eBay’s advertising business and thinks it will be a strong growth driver over the long term.

As a result, Sebastian has a Buy rating and a price target of $80 (44.3% upside) on the stock.

The rest of the analysts on the Street are cautiously optimistic about EBAY with a Moderate Buy consensus rating based on 5 Buys and 6 Holds. The average EBAY stock prediction was $76.36, which implies upside potential of approximately 37.7% to current levels for this stock.

Shares of The RealReal have tanked 71.7% in the past year, after reaching a high of $30.22. On Friday, the shares closed at $8.11. RealReal is an online marketplace for authenticated, pre-owned luxury goods.  The company is an omnichannel retailer of luxury goods, and it sells through its website, mobile app, and retail stores.

The online marketplace offers luxury goods across multiple categories including men’s, women’s, kids’, jewelry and watches, and home and art.

A majority of the company’s revenues are generated through consignment sales, followed by other services and direct sales.  

When REAL sells goods through retail stores or its online marketplace on behalf of its consignors, the company retains a percentage of the proceeds, defined as a take rate. At the end of Q3, the company’s take rate declined to 34.9% from 35.4% for the same period last year. The fall in the take rate was driven by higher contributions from products that had a lower take rate.

The company also earns revenues through its shipping fees and a monthly fee-based subscription program, First Look, which offers buyers early access to the goods that are available for sale. As of September 30, the company had a global base of 24.7 million members.

What’s more, REAL’s GMV increased by 50% year-over-year to $367.9 million in Q3. In a business update provided in January, REAL stated that in December, its GMV increased 40% year-over-year to $153 million.

REAL is expected to announce its fiscal Q4 and FY21 results on February 23.

The company admitted on its Q3 earnings call that it faced higher shipping costs and challenges when it came to staffing at its authentication centers. To address these issues, the company’s management stated on its Q3 earnings call that it has, “Implemented multiple initiatives including shipping diversification, and last mile optimization for the shipping cost and expanded automation and our authentication centers to address staffing shortages.”

Needham analyst Anna Andreeva is positive about these measures. Moreover, the analyst expects, “Self-help initiatives (growing brand visibility, improving pricing through data and automation, building retail stores) to drive sales and profitability higher.”

While Andreeva is optimistic about the stock with a Buy rating, the analyst lowered the price target from $35 to $25 (208.3% upside) reflecting the current market conditions. Furthermore, Andreeva pointed out that REAL is trading at only 1.3 times its Enterprise Value (EV)-to-Sales estimate for 2022, “Which is below the average multiples of the [e-commerce] group (2.3x).”

The rest of the analysts on the Street are cautiously optimistic about REAL, with a Moderate Buy consensus rating based on 6 Buys and 3 Holds. The average REAL stock prediction was $18.56, which implies upside potential of approximately 128.9% to current levels for this stock.

Interestingly, a look at the website statistics for The RealReal’s website using the TipRanks Website Traffic tool reveals a trend that supports Wall Street analysts’ cautiously optimistic stance regarding the stock. The company’s estimated visitors in Q4 declined 10.9% year-over-year to 20 million.

Bottom Line

While Wall Street analysts are cautiously optimistic about both stocks, based on the upside potential over the next 12 months, REAL seems to be a better Buy.

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