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Chart of the Day: eBay's Awful 2018

Background

eBay's stock (ticker: EBAY) has had a difficult 2018.

After posting positive absolute stock price returns for 9 consecutive years since the financial crisis (2009 - 2017) and successfully spinning off Paypal (ticker: PYPL) in 2015, the stock has hit a wall in 2018. For context, eBay rose nearly 27% in 2017, and hit a 52-week high in early February 2018 in the mid-$40s (52-week closing high = $46.2 on February 1, 2018).

However, eBay stock has declined nearly 40% since hitting its 52-week high in early February and the stock closed today at $28.75, nearly its lowest level in two years. Today, eBay was down another 9% after Paypal, which processes payments for the internet retailer, reported earnings after the market close yesterday afternoon (October 18, 2018). While Paypal reported strong earnings for its own business, Paypal management highlighted ongoing pressure from eBay and alluded to weakness in eBay transaction volumes year-over-year. eBay makes up 11% of Paypal's total transaction volume, down from 13% one-year ago. This news from Paypal, coupled with a downgrade from a notable Wall Street analyst, added pressure on eBay stock today. Hence, EBAY closed -9% today and is currently hovering near 52-week lows.

What Does Milton Think About eBay?

Two weeks ago, we highlighted eBay as a Sell Idea on Milton's Trending Stocks This Week (a section where we highlight stock ideas for users based on changes in Milton's score).

Why changes? Based on over 12 months of testing Milton's results, we have found that tracking changes in Milton's Score is a useful way to screen for new stock ideas using a simple buy, hold, and sell system. If you're a Milton subscriber, you likely saw this in our newsletter, but if you haven't yet signed up for Milton, you can access our weekly newsletter from October 1st here (eBay is mentioned on page 4 of the newsletter under "Trending Stocks This Week").

For simplicity, here is a screen shot from Milton's weekly newsletter highlighting Milton's increasingly negative view of eBay.

As of October 1, 2018, you can see how Milton's View had dramatically changed, to the downside, over the past month. From September 1st to October 1st, Milton's Score dropped from 87 (Milton View = Positive) to a score of 16 (Milton View = Negative)! We systematically track changes in Milton's Views almost daily, but even a change from 87 to 16 is a noteworthy observation.  Since sharing Milton's take on eBay at the beginning of October, we have continued monitoring eBay and seen Milton's View remain negative through today.

Chart Of The Day: eBay

As we've alluded to in the past on Milton's Blog, it is challenging to truly understand why Milton's comes to a decision. Simply put, interpreting how sophisticated AI technologies think is a massive challenge, especially for a small AI technology company like ours.

We consistently ask our team of data scientists to analyze why Milton's Views are changing and they look to data that Milton previously analyzed as a starting point. In that spirit, we looked at a few of Milton's previously analyzed data sets and a meaningful and interesting pattern emerged.

Specifically, we found a correlation between eBay's stock price and the US Google Trends search data for the query "eBay" over the past 1 year. Google Trends is a free resource available to everyone (click here) that measures the popularity of different search queries over time, including the ability to search by region and language. In this instance, we looked at how the search term "eBay" had performed in the United States (US represents 45% of eBay's net revenues)

Check out the chart below:

The blue line is eBay's stock price indexed to 100% as of 10/31/2017, about one year ago. The orange line is the percentage change, year-over-year, in the use of the search term "eBay" on Google's search engine in the US. It is important to note that from October 19, 2017 through today (October 19, 2018), eBay's stock price is -23%. During that same time period (year-over-year), eBay's US search queries per Google Trends are -21%, almost an identical decline when comparing these two trend lines.

Conclusion

We find these types of exercises to be helpful when trying to triangulate why Milton may be changing its mind when evaluating stocks. We will follow-up next week with a blog post highlighting a similar exercise we undertook to evaluate the important of word counts when determining news and management sentiment from public documents.

Contact Us

If you have any questions or comments about our eBay findings or Milton in general, feel free to reach out directly to the Milton team at milton@apteo.co or myself at manan@apteo.co!


About Apteo
Apteo, the company behind Milton, is made up of curious data scientists, engineers, and financial analysts based in the Flatiron neighborhood in New York City.  We have a passion for technology and investing, and we strongly believe that investing is one of the most reliable and effective ways to build long-term wealth.  We build AI tools to help informed investors make better decisions.  

To learn more about us, please reach out to us at info@apteo.co, join our mailing list at milton.ai, or subscribe to Milton’s blog at blog.milton.ai.


Disclaimer
Apteo, Inc. is not an investment advisor and makes no representation or recommendation regarding investment in any fund or investment vehicle.

Chart of the Day: eBay's Awful 2018
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