Time To Buy Amazon And eBay?

BMO Capital Markets’ Daniel Salmon initiated coverage of Amazon.com, Inc. AMZN with an Outperform rating and a price target of $700. He also initiated coverage of eBay Inc EBAY with a Market Perform rating and a price target of $26.

Amazon

Analyst Daniel Salmon believes that the recent decline in the value of high-growth, high multiple technology stocks like Amazon creates an excellent opportunity to initiate or build long-term positions.

Salmon expects Amazon’s retail business as well as AWS to continue supporting margin expansion over the coming years, even as the company invests aggressively in India and China. Amazon is also expected to benefit from the expansion of features like Prime Pantry and Prime Fresh in terms of new revenues apart from the growth powered by the AWS.

The analyst noted that Amazon has continued to gain share and extend its lead in the low margin retail business. The company’s Prime program has continued to grow and is expected to propel subscriber growth to 60 million in the US and to 106 million globally by the end of 2017.

eBay

In a separate report, Salmon pointed out that while eBay’s shares trade below historical averages, they are above their all-time lows following the spinoff of Paypal Holdings Inc PYPL.

The revenues and GMV of eBay are growing at a significantly lower rate than Amazon’s, thus justifying a lower multiple. “Additionally, in contrast to Amazon, we do not believe there remains as great of an opportunity to expand margins,” Salmon commented.

eBay’s structured data initiatives are at an early stage and the company’s potential capital return scenario is likely to improve in 2017. The analyst expects management’s focus on structured data to accelerate eBay’s active buyer growth rate in 2016 and beyond.

“In mid-2014, changes to Google’s search algorithm had a significant negative impact as eBay’s listings were subsequently reduced due to them being unstructured,” Salmon mentioned. He added that the company had laid out an 18-24-month timeline for re-architecting the organization of its listings.

“While fears about share losses to companies like Amazon and Alibaba are justified, our bigger concern is the potential pressure they could put on eBay’s overall take-rate which we estimate will continue to decline,” the BMO Capital Markets report noted.