Trouble Ahead For eBay? Morgan Stanley Downgrades, Sees 11% Downside

Morgan Stanley’s Brian Nowak believes that there could be 11 percent downside risk for eBay Inc EBAY, with a slowing top line and negative revisions of the consensus forecasts driving the stock to underperform.

Nowak downgraded the rating on the company from Equal-weight to Underweight, while lowering the price target from $24.00 to $22.50.

Domestic Marketplaces

Nowak cautioned that while the domestic marketplaces business accounted for 40 percent of eBay’s gross merchandise value (GMV) and 36 percent of its total revenue, the business has been slowing and further deceleration was expected going forward.

International Marketplaces

However, the analyst pointed out that the cause for concern was the company’s International marketplaces business, which accounted for 60 percent of the total GMV and 44 percent of the total revenue.

“We see particular signs of erosion in the UK and Germany (which combined make up 62 percent of international GMV), based on our latest Alphawise survey data,” Nowak stated.

Risks

Nowak believes that there are three risk factors that this business faces. The first is a slowing in net buyer growth, with the Alphawise survey revealing that 60 percent of consumers in the UK and Germany do not intend to shop on eBay in 2016, as compared to 20 percent at the start of 2015.

The Alphawise survey also indicated a decline in spend per buyer, given that “the percentage of buyers expecting to spend less/the same on eBay year-on-year rose in all 6 of the main countries surveyed.”

Nowak also expressed concern regarding the rising competition from Amazon.com, Inc.’s AMZN Amazon Prime, along with a decline in eBay’s unique product offerings.