eBay: Not A Growth Rocket, Just A Stable Business (NASDAQ:EBAY)

There’s more than one way for a sell-side analyst to figure out a company’s “fair” value — and trust me, some of them are way more useful than others. First up: the DCF method. It’s like building a super-complex LEGO set — tons of tiny pieces (assumptions) that might fit together perfectly… or not. This complexity opens the door for biases: overconfidence (“I’m sure my model is right”), hindsight bias (“I totally saw this coming”), and anchoring (“Let’s just stick close to that first number we guessed”). Oh, and yes — “tweaking” numbers to match the company’s policy is still a thing. Then there’s the multiples-based approach. It skips the whole “company view” and says, “Let’s just compare with the peers.” Sounds neat — until you realize it assumes those peers are fairly priced. History? Yeah… it shows that’s rarely the case. And the third method: Mix Yes. They give weight to any of the previous two (usually 70% DCF, 30% multiple) and call it a day! Now let’s move to WHAT… REVERSE VALUATION. This one starts with the market price and discount rate, then works backward to reveal the free cash flow assumptions hiding inside the current valuation. It’s like reading the market’s mind — but without the tarot cards. On this site, we use reverse equity valuations as a straight-up reality check. No fluff. No hype. By comparing market-implied expectations with your own views, you can instantly spot whether prices are fueled by pure optimism or deep skepticism. It’s your go-to tool for calling out consensus BS and seeing exactly what’s baked into today’s stock prices. … and the boring part. Here we are going to become more technical. For reverse valuation, we use Free Cash Flow to Equity (FCFE). This model simplifies the process for equity shareholders, and it measures what shareholders can actually receive. The formula for FCFE we use is as follows: Reported earnings excluding meaningful one-time gains/losses + Amortization cost – CAPEX – average acquisition cost (we are looking at it just like part of CAPEX for M&A savvy companies) = FCFE We ignore working capital changes, which are highly irregular on a YoY basis, and analysts often use them to tweak valuation. If your valuation depends on working capital changes, we believe something is not right. We also ignore the change in net borrowings. Why? For most companies, this is not their core business, and we assume that current debt levels won’t change in any meaningful way. Also, we take out any effect from the interest cost change due to the debt level change. So, we assess company value on just three numbers. Earnings available to be drawn over time (buybacks, dividends, etc), amortization cost (wear and tear recorded on paper and has no cash outflow), and CAPEX (real cash outflow when the company invests). This approach clears the noise! Also, in “forecasting” FCFE, we use the H model, which is a 2-stage growth model. We assume a normalisation phase lasting 10 years, during which the growth rate decreases annually to its final value. We normally use this one to be the same as RFR. RFR is the risk-free rate. It is a 10-year yield on a government bond. All cash flows are discounted with the Cost of Equity, which is calculated as RFR*5-year beta+ERP. ERP or equity risk premia is calculated as 5%.