EBay Hit With Downgrade At Cantor: Here's Why

• eBay Inc EBAY shares have been volatile over the past month, losing 8 percent since August 10.
• Cantor Fitzgerald’s Youssef Squali downgraded the rating for the company from Buy to Hold, while reducing the price target from $72 to $27.
• Following the PayPal Holdings Inc PYPL spin-off, eBay’s turnaround continues to be a work in progress, although Marketplaces appears to have stabilized.

Analyst Youssef Squali mentioned that the downgrade and new price target follows the completion of the PayPal spin-off. eBay’s remaining assets are “slow-growth” in nature.

Although eBay seems to have successfully stabilized Marketplaces, its turnaround continues to be “a work in progress,” Squali said, referring to the July and August same-store sales data, which suggests “low- to mid-single-digit Y/Y growth,” significantly short of ecommerce’s 15-20 percent growth.

Cantor Fitzgerald noted that the company is taking measures to drive sustainable growth through “better search ranking, product improvements and higher user-engagement.” Squali added, however, that is was unclear when these initiatives would begin “materially impacting the growth profile” of the company.

Further, Google made SEO changes last year, which adversely impacted user growth, including new customer acquisition. On the other hand, security breach has lowered repeat usage.

“We opt to move to the sidelines as we await signs of sustainable growth re-acceleration. While strong FCF generation and $3B in authorized share buybacks limit the stock's downside risk, we find near-term catalysts lacking and the stock fairly valued,” Squali wrote.

The EPS estimates for 3Q15 and 4Q15 have been reduced from $0.68 to $0.39 and from $0.84 to $0.47, respectively.