Top Analyst Sees 'Lackluster' Q1 From eBay

In a report issued Thursday, analysts at SunTrust provided a preview of eBay Inc EBAY's first quarter earnings, and reiterated a Neutral rating and a $57 price target on the stock.

The firm said the e-commerce company is expected to report a “lackluster” first quarter “overshadowed by the spin transition.

"Data shows continued weakness in auctions and sub-par growth in fixed price vs. the industry,” while the payments segment faces intensified competition for volume, and cost and margin pressure from large merchants, analysts added. FX headwinds continued to impact international growth and cross border trade for both eBay and PayPal.

Related Link: What's PayPal's Updated Form 10 Mean For eBay?

SunTrust expects revenues of $4.43 billion and Non-GAAP operating income of 1.08 billion, in-line with the Street. However, they clarify that FX could have a larger impact than predicted. Regarding guidance, they think it will be subdued as the company gets ready for the spin.

A Broader Preview

The report goes over some other preview thoughts.

For Marketplaces, “traffic trends were more positive in 1Q vs. 4Q for eBay which could help improve the 5% active buyer growth from 4Q. Further, the company is now several quarters into spending on marketing and contra revenues to counteract the SEO changes and password reset.”

Concerning PayPal, the analysts point out that TPV stood at 27 percent for 2014, with Braintree adding 6 percent to growth, but retrieving lower take rates. They add that FX weakness could impact negatively on cross border transactions, which represented 24 percent of TPV in 2014 and generate higher fees.

Finally, they project “ongoing investments and cuts ahead of the spin,” and say that “guidance may be complicated by the rapidly shifting FX environment – eBay generates ~50% of revs from Europe.”

Bottom Line

The Neutral rating is based on the recognition of “the positive implications of the split,” somewhat counterbalanced by an “increased competitive environment and valuation.”