Why Is eBay The Lone Tech Stock To Get A Price Target Raise From Citi?

Citi’s Mark May adjusted price targets for tech stocks to incorporate future SBC dilution into their valuation framework.

“We’ve found that most investors still don’t fully account for the likely ongoing dilution from stock comp grants in their valuations,” analyst Mark May wrote. Citi’s models and price targets have been adjusted now to better reflect the impact of stock-based compensation.

While some believe this is “a bear market issue,” this is likely “a necessary change that is long overdue,” May commented. Having adjusted the models to fully capture “the likely ongoing dilution from future share grants as part of employee compensation,” the analyst has made the following target price changes.

Price Target Reduced

• Alphabet Inc GOOGL – Buy maintained, price target reduced from $924 to $900.
• Facebook Inc FB - Buy maintained, price target reduced from $134 to $133.
• Amazon.com, Inc. AMZN - Buy maintained, price target reduced from $780 to $760.
• Netflix, Inc. NFLX - Neutral maintained, price target reduced from $121 to $116.
• LinkedIn Corp LNKD - Neutral / High Risk maintained, price target reduced from $194 to $130.

eBay: Price Target Raised

Citi maintained a Buy rating for eBay Inc EBAY, while raising the price target from $31 to $32. “On both a percentage of revenue and opex basis, EBAY ranks in the middle of the pack [of large cap Internet companies] in terms of the value of annual stock comp grants,” May wrote.

Paypal Holdings Inc PYPL was formed in 2015, having been separated from eBay. Moreover, eBay Enterprise was sold. May expects the dollar value of grants to decline significant in 2016 and believes the value of grants as a percentage of operating expenses would come closer to the 2014 levels.

“SBC is also expected to decrease y/y as it laps the impact of one-time items in 2015 associated with the distribution and departing executives,” the analyst commented.