eBay Selloff After Spinoff 'Likely,' Benchmark Warns

In a report published Wednesday, Benchmark analyst Daniel L. Kurnos maintained a Buy rating on eBay, Inc. EBAY, while raising the price target to $71. The analyst expects investors to focus more on the upcoming spin-off of Paypal Holdings, Inc. PYPLV on Friday, rather than the 2Q15 results announcement expected on Thursday. "Based on prevailing sentiment, we expect shares of core eBay will sell-off post-spin, with PayPal trending higher as the primary and one of the only ways to play the emerging mobile market trends," analyst Kurnos stated. Although there are wide variations in the 2016 EBITDA expectations for eBay, the analyst expects the consolidated company to generated EBITDA of $6.71 billion in 2016, with PayPal accounting for $2.7 billion. "We see modest margin expansion at PayPal, with moderating transaction expenses partially offset by an initial uptick in transaction and loan losses, along with increased product development costs to invest in platform expansion," according to the Benchmark report. The analyst also expects the company to see additional scale benefits, beyond the gains in add-on fees, which would drive modest margin growth in the medium to long term. At the same time, there is also likely to be continuing pressure on the take rate, driven by competition and a higher large merchant mix. "We think core eBay could present a compelling value once the expected initial selling pressure abates," analyst Kurnos added.