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Collins Stewart analyst Sandeep Aggarwal Wednesday morning upped his rating on eBay (NASDAQ:EBAY) to Buy from Hold, with a price target of $23. His thesis is that the company is showing signs of a turnaround in its core Marketplace business.

“Though eBay still has a long way to go, the signs we have seen so far are extremely encouraging,” he writes. His case:

  • The company has improved its search for the best match favoring merchants with higher seller ratings.
  • It is “dramatically increasing” penetration for free shipping by offering incentives.
  • Standing behind buyers using PayPal in case of fraud/legitimate returns.
  • Increasing selection by implementing fee structure changes.

He contends these changes translate to higher listing conversions, growth in gross merchandise value higher than listings growth, higher realized dollar value per listing and more satisfied buyers and sellers.

Aggarwal upped his 2009 EPS estimate by a penny to $1.47. For 2010, he now sees $1.71, up from $1.62.

The Street appears unconvinced: EBAY Wednesday is down 24 cents, or 1.3%, to $17.72.

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Source: Is eBay's Core Business Turning Around?