eBay Watch: Analysts React to Q3 Results

A number of key developments to note for eBay (EBAY) watchers:

Analysts React to eBay Q3 Results

JPMorgan Raises eBay Estimates

JPMorgan analyst Imran Khan Wednesday reiterated his Overweight rating and raised his EBAY estimates. Khan states:

eBay reported 3Q results slightly ahead of our revenue and operating profit estimates. In light of our increased optimism about eBay’s operating results, we are adjusting our 4Q numbers slightly.

In terms of valuation, Khan continues:

On an EV/EBITDA basis, eBay trades 17x our F’08 estimate, compared to its peers at 20x F’08 estimates. We think such a discount is unwarranted.. We thus reiterate our Overweight rating."

UBS Raises eBay Price Target

UBS analyst Benjamin Schacter has raised eBay's target price from $38 to $41 but reiterated his neutral rating, noting that earnings per share were boosted by the tax rate. Schacter states that although gross merchandise value grew 10%, year-over-year, it’s not enough to allay concerns about the erosion in core listings growth. Schacter says:

Longer term, these concerns regarding core marketplace growth rates and growing margin pressure from faster growth at PayPal and Skype keep us on the sidelines.

Merrill Lynch Reiterates Neutral eBay Rating

Merrill Lynch analyst Justin Post has reiterated his Neutral rating on eBay. Post stated that:

The quarter was not as good as headline EPS numbers (margins were lower than expected) as eBay reinvested 3Q upside into business (just like last quarter), but we think stock can hold recent gains based on positive estimate revisions into eBay’s seasonally strongest quarter. The jury is still out on the potential returns on new investment and marketplace changes with user growth decelerating." Post values eBay between $35 and $45 based on his sum-of-parts framework.

Goldman Sachs Raises eBay Price Target

Goldman Sachs analyst Anthony Noto has raised his price target for eBay from $43 per share to $51 per share and maintained his 'buy' rating. The 18% increase in target price is based on continuing business momentum and stable growth in revenues, GMV, and operating income. Noto says eBay has potential for multiple expansion due to greater visibility into the company's long-term growth profile.

Deutsche Bank Downgrades eBay

Deutsche Bank analyst Jeetil Patel has this morning downgraded eBay from hold to sell and maintained his $33 price target. Patel claims:

eBay is facing a worst case scenario in its business, due to 2% transaction volume growth (and potentially declining soon), user dis-engagement, higher ad costs, declining purchase frequency, rising seller costs and operating margin pressures.

Soleil Securities Upgrades eBay

Soleil Securities analyst Laura Martin has upgraded shares of eBay to Hold from Sell following the Q3 results. Martin thinks eBay are improving near term fundamentals with diversification of revenue streams. She highlights PayPal's robust growth and increasing relevance to eBay as a whole.

Stifel Nicolaus Raises eBay Price Target

Stifel Nicolaus analyst Scott Devitt has raised his price target on eBay from $44 to $46 per share and reiterates his Buy rating on the company. Devitt states:

The company has reported healthy results for the latest quarter, with normalized GMV rising by 9%. eBay’s non-GMV businesses continued to boost Marketplaces growth in the quarter, a trend that is expected to continue going forward.

The cash EPS estimates for 2008 and 2009 have been raised from $1.60 to $1.65 and from $1.79 to $1.85, respectively.

RBC Raises eBay Price Target

RBC Capital Markets analyst Jordan Rohan raised his target price for eBay from $40 to $44 and raised his estimates but reiterated his "sector perform" rating. Rohan mentioned:

Q3 results indicate improved stability at the company and acceleration in PayPal growth. eBay has raised its EPS and revenue guidance for 4Q07 to $0.39-$0.41 and $2.1-$2.15 billion, respectively. The upward revision in the target price reflects a shift in the base year.

William Blair Reiterates Hold Rating

William Blair analyst Jack Murphy reiterates their buy rating on eBay. Murphy states that given a slowdown in listings growth in recent quarters, eBay will start facing easier comps in 2008. Murphy thinks the shares are fairly valued at a current 24 times his projected $1.70 per share in earnings next year, given the company’s long-term 18% growth rate in earnings.

American Tech Raises eBay Price Target

American Tech Research analyst has raises his eBay price target from $45 to $47 and reiterated his Buy rating. Tim Boyd says eBay's decision to slash listing fees caught the market off-guard and will create headwind for the stock. Boyd states:

Management’s decision to slash up-front listings fees ahead of the holiday shopping season may be an implicit admission that their pricing power over sellers has deteriorated.

Despite this, Boyd thinks eBay is undervalued.

EBAY Experiments with Lower Fees

During Wednesday's Q3 results conference call, eBay's Meg Whitman announced that EBAY will experiment with lower fees in Q4. More specifically, from yesterday until November 5th, there is a 33% discount on all your insertion fees (both BIN and auction format) and a 50% discount when you list for less than $1.

This is an unusual move by eBay, who is more accustomed to raising fees. Asked about the change, Meg Whitman said "We've not ever really decreased price, and it is possible that by decreasing price, we actually increase the revenues and vibrancy of this market in such a way that this price decrease is self-liquidating."

That would indeed be great. With Q4 listings already growing much faster year over year than in Q3, this move could add significant upside to the Q4 holiday season. Let's wait and see.

Comments

[Burns:]

eBay is a buy. They just posted their first negative quarter since 1999, and that was only because of the Skype purchase. Over 30 quarters of profits tells me that eBay management knows what it is doing www.newsvisual.com/new... . With their collective experience and creativity I have now doubt they will make Skype a better product and turn it into a revenue generating maching.

2007 Oct 19 12:15 PM

[kdo:]

While I second the sentiment, you should be careful. The stock hasn't fallen because of anything to do with the results regarding Skype.

2007 Oct 19 12:53 PM