eBay's 44.6% Return on Equity Tells a Bigger Story

What Is eBay?

eBay is the original online marketplace — the platform that pioneered consumer-to-consumer e-commerce when it launched in 1995. Today, it operates as a global marketplace connecting roughly 134 million active buyers with millions of sellers, facilitating over $80 billion in gross merchandise volume annually. Unlike Amazon, eBay doesn't hold inventory or fulfill orders; it simply connects buyers and sellers and takes a cut of each transaction.

The business model is elegantly simple. eBay earns revenue primarily through transaction fees (a percentage of each sale), promoted listings (advertising that helps sellers gain visibility), and payment processing through its managed payments platform. In fiscal 2025, eBay generated approximately $10.7 billion in revenue with a 71.6% gross margin — reflecting the asset-light nature of a pure marketplace model.

eBay's competitive position has evolved. Rather than competing head-to-head with Amazon on commoditized products, eBay has increasingly focused on "non-new-in-season" inventory: collectibles, vintage items, refurbished electronics, auto parts, and luxury goods. This strategic pivot plays to eBay's strength as a discovery platform for unique items that can't be found elsewhere. The company's focus categories — collectibles, motors parts and accessories, and fashion — grew GMV over 15% in Q3 2025, demonstrating that this differentiation strategy is gaining traction.

How eBay Scores on All 9 Buffettology Criteria

eBay earns a perfect 9/9 on the Buffettology scoring system. Here's how it performs on each criterion.

1. High Return on Equity — PASS (44.6%)

Buffettology requires ROE above 12%. eBay's 44.6% ROE is nearly four times the threshold — an exceptional figure that reflects the capital-light nature of a marketplace business combined with aggressive share repurchases that shrink the equity base. When a company generates $2.18 billion in annual net income without needing factories, warehouses, or inventory, ROE naturally runs high.

2. High Return on Invested Capital — PASS (15.1%)

ROIC measures how efficiently a company uses all its capital — both debt and equity — to generate returns. The threshold is 9%. eBay's 15.1% ROIC demonstrates that every dollar of capital deployed earns well above the cost of capital, creating real economic value for shareholders.

3. Cash Machine — PASS (FCF/Assets >5%)

This criterion checks whether the company generates strong free cash flow relative to its asset base. eBay converts its revenue into $1.53 billion of annual free cash flow, translating to a healthy FCF yield of roughly 8.5% on enterprise value. The marketplace model requires minimal capital expenditure, so operating cash flow flows through to free cash flow with little leakage.

4. Fair Valuation — PASS (5.2% Earnings Yield)

The earnings yield (inverse of P/E) must exceed 3.5%. eBay's 5.2% earnings yield clears this bar comfortably, meaning the business earns more per dollar of market cap than a risk-free Treasury bond. With a trailing P/E of 18.7x, eBay trades at a discount to both its historical average and the broader market.

5. Share Buybacks — PASS (-6.4% Share Dilution)

Buffett favors companies that return capital through buybacks rather than diluting shareholders. eBay's share count is declining at 6.4% annually — one of the most aggressive buyback programs in large-cap tech. In Q3 2025 alone, eBay repurchased $625 million in stock. Management has consistently prioritized returning capital to shareholders over empire-building acquisitions.

6. Defensible Moat — PASS (71.6% Gross Margin)

Gross margins above 40% indicate pricing power and a competitive moat. eBay's 71.6% gross margin is exceptional — nearly 32 percentage points above the threshold. This reflects the fundamental economics of a marketplace: eBay takes a percentage of transactions without bearing inventory risk or fulfillment costs. The margin demonstrates that sellers continue to find eBay's audience valuable enough to pay meaningful take rates.

7. Simple Business — PASS

eBay operates a straightforward marketplace model in the Consumer Cyclical sector. Buyers find products. Sellers list products. eBay facilitates the transaction and takes a fee. There's no complex financial engineering, no speculative bets on unproven technology — just a two-sided marketplace that's been operating for nearly three decades.

8. Conservative Debt — PASS (1.49x Debt/Equity)

The threshold is 1.5x. eBay's debt-to-equity ratio of 1.49x just clears the bar. This is the tightest pass among the nine criteria. The company carries approximately $7.5 billion in long-term debt, which is manageable given its consistent cash generation, but leaves less margin for error than peers with cleaner balance sheets.

9. Consistent Growth — PASS (89.3% Five-Year Growth)

Five-year net income growth must be positive. eBay's 89.3% cumulative growth over five years demonstrates that despite being a mature business, the company has meaningfully expanded profitability. This growth reflects both operational improvements and the mathematical effect of aggressive buybacks reducing share count.

The Bull Case

eBay has several structural advantages that bulls see driving long-term value:

Focus categories are accelerating. eBay's strategic pivot toward collectibles, auto parts, refurbished goods, and luxury items is working. Focus category GMV grew over 15% in Q3 2025, significantly outpacing the overall marketplace. Trading cards, vintage fashion, and pre-owned luxury goods represent categories where eBay's unique inventory and authentication capabilities create genuine differentiation from Amazon.

Advertising is a high-margin growth engine. First-party advertising revenue grew 25% year-over-year in Q3 2025, reaching $496 million. At 2.6% of GMV, advertising take rate still has room to expand toward levels seen at other marketplaces. This is essentially pure-margin revenue layered on top of the existing transaction business.

Capital return is extraordinary. eBay returned $757 million to shareholders in Q3 2025 alone through buybacks and dividends. The 6.4% annual share count reduction compounds meaningfully over time. With a 1.35% dividend yield on top of buybacks, total shareholder yield approaches 8% annually.

Valuation is reasonable. At 18.7x trailing earnings and 15x forward earnings, eBay trades below both its 10-year average P/E of 28x and the Consumer Cyclical sector average. For a business generating 42% ROE and 72% gross margins, this multiple implies meaningful pessimism is already priced in.

Strategic acquisitions expanding reach. The announced acquisition of Tise, a Norwegian consumer-to-consumer social marketplace, demonstrates eBay's intent to grow its global C2C footprint and engage younger, community-driven buyers. This positions the company for the growing resale and circular economy trend.

The Bear Case

eBay faces real structural challenges that deserve honest consideration:

Active buyer growth has stalled. Total active buyers grew just 1% year-over-year to 134 million in Q3 2025 — essentially flat. For a company whose value depends on network effects, stagnant user growth is a concerning signal. If eBay can't attract new buyers, eventually the seller base will follow.

Competition from Amazon and vertical specialists is relentless. Amazon dominates e-commerce mindshare. Meanwhile, specialized platforms like StockX (sneakers), Poshmark (fashion), and Reverb (music gear) are chipping away at eBay's core categories. eBay's generalist positioning may be increasingly vulnerable to focused competitors.

Revenue growth is modest. Despite the strong Q3 2025 showing (9% growth), eBay's long-term revenue trajectory has been sluggish. The company's guidance for Q4 2025 disappointed investors. Without sustained top-line growth, multiple expansion is unlikely.

Debt is near the limit. The 1.49x debt-to-equity ratio just barely passes the Buffettology threshold. While manageable, this leverage level provides less cushion than many quality companies. Any deterioration in profitability would quickly make the balance sheet look less conservative.

Tariff and macro exposure. As a global marketplace with significant cross-border transaction volume, eBay is exposed to tariff policy and international trade friction. Rising tariffs could dampen cross-border GMV, which has historically been a strength of the platform.

Valuation Overview

eBay trades at a meaningful discount to both its history and peers:

• Trailing P/E: 18.65x vs. 10-year average of ~28x
• Forward P/E: 14.96x
• PEG Ratio: 1.56
• Price-to-Sales: 3.73x
• Price-to-Book: 8.26x
• EV/EBITDA: 15.54x
• Earnings Yield: 5.62%
• Dividend Yield: 1.35%

The current P/E of 18.65x sits 39% below eBay's historical average and 10% below the Consumer Cyclical sector average of approximately 19x. This discount reflects investor skepticism about eBay's ability to reignite growth.

Analyst price targets range from $68 to $112, with a consensus around $96-98. Morgan Stanley recently raised its target to $112, implying roughly 30% upside from current levels. Simply Wall Street's discounted cash flow model suggests eBay trades more than 20% below fair value.

The valuation story is straightforward: eBay is priced like a no-growth value stock, but still generates exceptional returns on capital and returns substantial cash to shareholders. If focus categories continue to outperform and advertising revenue keeps scaling, there's room for multiple expansion. If active buyer growth remains stagnant, the current discount may be justified.

The Buffettology Verdict

eBay's perfect 9/9 Buffettology score confirms what the numbers make clear: this is a high-quality business with exceptional returns on capital, a genuine moat reflected in 71.6% gross margins, and disciplined capital allocation that prioritizes shareholders over growth-at-all-costs. The 44.6% ROE and 6.4% annual share count reduction are particularly impressive.

The key question is whether eBay can remain relevant as e-commerce continues to evolve. The focus category strategy and advertising growth are encouraging signs, but the flat active buyer count is a warning flag. For value-oriented investors who believe in the durability of eBay's marketplace model, the current valuation offers an attractive entry point into a business that meets every one of Buffett's criteria.

Want to see eBay's live Buffettology score with the latest data? Check EBAY on Buffett Score.

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