Morgan Stanley Maps Four Scenarios for eBay's Depop Gamble

For years, investors watched ride-hailing giants burn through cash to secure market share, only to punish their stocks when losses mounted. Now, a similar dynamic is unfolding in the secondhand fashion market, with eBay at the center of a costly battle to defend its Depop app from European rival Vinted's expansion into the U.S.

eBay shares have dropped about 15% since their May 2026 peak, as investors grow uneasy over the company's rising marketing spend to protect Depop's position. The anxiety intensified after both Wells Fargo and Citizens downgraded the stock in August, warning that higher promotional costs could weigh on eBay's 2027 earnings. This selloff has persisted even though eBay reported a 15% year-over-year revenue increase for the second quarter of 2026, according to company filings.

The timing is complicated by a $56 billion unsolicited takeover bid from GameStop CEO Ryan Cohen, who has built a nearly 10% stake in eBay. Cohen argues that eBay's marketing budget has ballooned without delivering user growth, a claim the board rejected as "neither credible nor attractive" in a May regulatory filing. Despite the rebuff, Cohen continues to press his case directly to institutional shareholders, raising the stakes for eBay's leadership as they navigate both competitive and activist pressures.

Strategic Spending or Value Destruction?

Morgan Stanley takes a sharply different view from the market consensus. In a research note published August 18, analysts led by Nathan Feather reaffirmed their overweight rating on eBay and set a $127 price target. They argue that investors are misreading the risks, treating Depop's spending as a drag on value while overlooking the potential upside if eBay can outlast Vinted in the U.S. resale market.

The firm points to Vinted's own aggressive playbook in Europe, where heavy spending helped it dominate markets like the U.K. and achieve a valuation of roughly $9 billion in an April 2026 share sale. Vinted's monthly active users now represent about 14% of Europe's population, while Depop's U.S. penetration is closer to 4%. Morgan Stanley sees this gap as an opportunity for eBay, not just a risk.

Rather than betting on a single outcome, Morgan Stanley outlines four possible scenarios for how the spending war could play out, each with its own probability:

• Arms race (40% probability): Both companies escalate spending, squeezing near-term earnings, but Depop ultimately secures dominant U.S. market share due to its larger user base.
• Relative peace (30% probability): Both sides signal willingness to spend but pull back on unprofitable advertising, resulting in a milder earnings hit while user growth continues.
• Vinted retreats (20% probability): Vinted cannot match Depop's spending and shifts focus elsewhere, a scenario Morgan Stanley views as positive for eBay's stock both now and in the future.
• eBay retreats (10% probability): eBay decides the cost of winning is too high and pulls back, providing short-term relief but ceding the category to Vinted for good.

Morgan Stanley considers the last scenario the least likely and the only one posing a true long-term risk to eBay's position. The firm expects near-term guidance to be challenging but believes the medium-term case for eBay has strengthened.

Lessons From Past Market Battles

History offers mixed lessons for investors watching this contest. In the U.K., Vinted lost to Depop for several years before dramatically increasing its marketing spend in 2021, eventually flipping the market and growing its user base to 25 times that of Depop. On the other hand, U.S.-based Poshmark saw its marketing costs outpace sales growth for two years after going public, ultimately leading to its sale for $1.2 billion.

The key, according to Morgan Stanley, is not just how much is spent, but whether that spending translates into user retention and product fit. eBay's CFO has indicated that some of Depop's budget will come from reallocating existing marketing dollars, which could soften the impact on overall expenses. Still, the market remains skeptical, as reflected in recent analyst downgrades.

For investors weighing the risks, the next few quarters will be critical. If Depop's early lead in the U.S. market holds up, eBay's board may be vindicated in resisting Cohen's takeover push. If not, the pressure to reconsider a sale could intensify. The outcome will likely hinge on whether eBay's strategy resembles Vinted's eventual U.K. victory or Poshmark's decline.

Market Data and Broader Context

eBay reported second-quarter 2026 revenue of $3.2 billion, up 15% from the prior year, while net income rose to $650 million. Depop's U.S. user base is estimated at 7 million, compared to Vinted's 2 million, according to company disclosures. Meanwhile, Vinted's European user base exceeds 80 million, highlighting the scale of the opportunity-and the competitive threat. For investors interested in how steady contributions and compounding can drive long-term results in volatile sectors, a recent analysis of ETF investing strategies is available at this in-depth look at consistent ETF investing.

In the coming months, eBay's guidance cycles and user growth metrics will be closely watched as signals of whether its spending is building lasting value or simply eroding margins. The board's ability to balance short-term earnings pressure with long-term market share ambitions will shape not only eBay's future, but also the broader landscape for secondhand fashion platforms in the U.S.

When companies face off in high-stakes market share battles, the winner is rarely determined by spending alone. Success often depends on whether marketing dollars translate into loyal users and sustainable growth. For investors, understanding the difference between tactical losses and strategic investments is crucial-especially when activist shareholders and aggressive rivals are in play. As eBay's experience shows, the path to dominance in a fast-changing market is rarely straightforward, and the risks and rewards can shift quickly as competitive dynamics evolve.