Morgan Stanley Starts Both eBay, PayPal At Equal-weight

In separate reports published Thursday, Morgan Stanley analysts initiated coverage of eBay Inc EBAY and PayPal Holdings Inc PYPL with Equal-Weight ratings.

Analyst Brian Nowak said that eBay’s Gross Merchandise Value was expected to grow 6 percent and 7 percent ex-FX in 2015 and 2016. The company is expected to generate revenue growth of 4.5 percent and 5 percent ex-FX in 2015 and 2016.

Nowak expects eBay to benefit from easing comps in 2H15, and said that the breakdown of the company’s fixed and auction businesses highlighted “the underlying strength of the fixed price business (80% of GMV consistently growing low- to mid-double-digits).”

While stating that this provided “a margin of safety” for the company’s revenue growth, Nowak commented that it was “difficult to drive material upside to fixed GMV growth or revenue without more buyers,” which did not rise sequentially in 2Q15.

In the report Morgan Stanley noted, “Our latest AlphaWise survey data show some encouraging eBay buyer trends in Clothing, Shoes, Home Improvement, and Consumer Electronics, but we wait for evidence of sustainable buyer growth before looking to get more positive.” Nowak has a price target of $29 for eBay.

Smittipon Srethapramote said that PayPal was a “dominant player” in the attractive ecommerce and mcommerce segments, while pointing out that the company was “the fastest grower in our coverage universe.” Srethapramote added, however, that this was already “priced in the stock.”

In the report Morgan Stanley stated:

• PayPal may generate above-industry growth in the near term, backed by a secular shift toward online payments.
• Management's medium-term targets for mid-20s ex-FX TPV growth and about 15 percent ex-FX revenue growth appear “achievable” in view of the secular tailwinds from “eCommerce, contribution from Braintree, potential for increased merchant penetration, and assumed deterioration in the take rate.”
• PayPal would need to adapt to the evolving landscape and increase in competition from new entrants, as consumers shift towards mobile payments.

Srethapramote added, “Although increasing competition could disadvantage PYPL longer term, we think near-term risk is to the upside.” The analyst has a price target of $36 for PayPal.