UPDATE: Nomura Upgrades eBay to Buy on PayPal Momentum

Nomura raised its rating on eBay

from Neutral to Buy and increased its price target from $43.50 to $60. Nomura said, "PayPal has been the largest source of eBay upside this year, as segment margins have expanded by ~400bp. In the following note, we dive into PayPal‟s evolving business and cost structure and conclude that we have been under-appreciating the growing drivers to PayPal's profitability… and this is just the beginning of rising PayPal earnings power. Our slicing of PayPal's costs through a "variable” vs. “fixed/semivariable" lens underscores that the recent de-levering in variable costs (falling by 132bp in 1Q:12 and 198bp in 2Q:12) has been a significant driver of the segment margin improvements. This 2Q:12 contribution margin expansion was the largest since 2009, and in our view, was an omen of what's to come." eBay closed at $48.59 on Wednesday.