EBay: Stock Swoons As Three Analysts Downgrade

It was a rough morning for eBay (EBAY) shares, which are down sharply following last night’s poorly received Q2 earnings report. While revenues and EPS for the quarter beat expectations, Q3 guidance disappointed the Street, and analysts were dismayed by weaker than expected gross merchandise value in the quarter. A trio of analysts lowered ratings on the stock:

• Goldman Sachs analyst James Mitchell cut his rating on the stock to Neutral from Buy. He writes this morning that the lesson from the weak GMV in the quarter is that “eBay’s business is too large and complex to rapidly reinvigorate, especially in a challenging macro climate, causing consumers to trade down.” He chopped his price target on the stock to $30, from $38.
• American Technology Research analyst Tim Boyd dropped his rating to Sell from Neutral; his price target is now $20, down from $35. He notes that GMV growth of 8% year-over-year is 400 basis points lower than the previous quarter. He says there were two reasons for the “horrid” growth: deteriorating consumer spending patterns reduced conversion rates and average selling prices, and growth in the Motors segment “fell off a cliff.” Boyd writes that he wonders if a 0% growth quarter, or even a negative growth quarter, could be coming soon. “In this market environment, cheap stocks can and will get cheaper in a hurry if they don’t deliver good news,” he writes.
• Thomas Weisel’s Christa Quarles cut her rating on the stock to Market Weight, from Overweight. “Unfortunately, we didn’t see an improvement in the underlying fundamentals at eBay and conclude that shifting the purchase behavior of the typical eBay consumer will take at least 12-18 months,” she wrote in a note this morning. “While we applaud the aggressive stance that the relatively new eBay management team is taking with regard to seller pricing and buyer experience, we believe the company faces an uphill battle in trying to communicate these changes and alter behavior of its buyers.”

Today so far, eBay shares have tumbled $4.30, or 15.3%, to $23.80.

Comments

[Henrietta:]

Deteriorating consumer spending patterns are directly related to the eBay team's decision to declare war on small sellers. Small sellers were also big buyers, note past tense. eBay decided to go with Buy.com who pay no listing fees, and have a sales rate of about 3%. This replaced all the small sellers who paid plenty in listing fees and had sell through rates between 40 - 50%. Buyers who are not nearly as dim as eBay thinks they are find no bargains at Buy.com on eBay. A simple Google search for any Buy.com item will invariably produce a better bargain elsewhere, sometimes to the tune of several hundred dollars, try it.

I have never had a problem with PayPal but boycotting PayPal goes right along with boycotting eBay. Yes I do still offer it on my website. If my customers want to use it they can and I offer my customers choice, unlike eBay, but I prefer Google Checkout and encourage its use by giving discount coupons which pay for themselves because Google Checkout is free with AdWords.

eBay was a wonderful place once but any entity which confuses its customers, those who pay for service, with those who come to 'only a venue' to buy from their customers, deserves what it gets.

I sold my shares earlier this year and would advise anyone who still has them to dump them. They are non-productive, and the dance is over.

2008 Jul 17 10:58 PM

[Et tu, Brute!:]

Goldman Sachs analyst James Mitchell / He writes this morning that the lesson from the weak GMV in the quarter is that “eBay’s business is too large and complex to rapidly reinvigorate, especially in a challenging macro climate, causing consumers to trade down.”

American Technology Research analyst Tim Boyd / He says there were two reasons for the “horrid” growth: deteriorating consumer spending patterns reduced conversion rates and average selling prices, and growth in the Motors segment “fell off a cliff.”

Thomas Weisel’s Christa Quarles / of the typical eBay consumer will take at least 12-18 months,” she wrote in a note this morning. “While we applaud the aggressive stance that the relatively new eBay management team is taking with regard to seller pricing and buyer experience, we believe the company faces an uphill battle in trying to communicate these changes and alter behavior of its buyers.”

The Street is absolutely CLUELESS to the reality of EBAY TODAY! Regardless of what drivel the corporate headquarters is feeding the stockholders, those stockholders had better wake up soon! Ebay is personifying the Titanic and is sinking, sinking, first slowly, then more and more rapidly...

Great article, though!

2008 Jul 18 12:10 AM

[Et tu, Brute!:]

By the way, regarding the "consumer spending" rigamarole constantly being touted due to recession: Amazon stock continues to hold and grow. Purchasing continues in that site.

Which ebay will NEVER become. They haven't the ethics.

2008 Jul 18 12:18 AM

[cabaretewil...:]

I became an EBay seller in 1998. I left two years ago. My son, a full time ebayt seller, left last month. This company is run by some brain dead people who go out of their way to please buyers - who pay zero - and aggravate sellers, who pay all the fees. Ebay deserves to go down!

2008 Aug 08 07:38 AM

[imelda:]

This company is SO mis-managed it defies explanation that it's still afloat.

Probably the ONLY reason is because hundreds of thousands of people make their living there, and yet they stick it to their CUSTOMERS, the sellers who pay fees to use their service.

I'm a seller there, and it's DISMAL, very very slow, and since the selllers are angry, they refuse to buy, so goes the circle.

Looks like the new CEO has been hired to wreck the company?

They should downgrade it to F- so we can all find a new venue.

2008 Sep 29 09:54 PM