Axiom Calls eBay An Attractive Internet Value Play

• eBay Inc EBAY shares have lost 11 percent since January 19.
• Axiom’s Victor Anthony maintained a Buy rating for the company, while reducing the price target from $34 to $30.
• Stabilization of Core eBay, high FCF yield, share buybacks and the stock’s low multiple result in the positive view, Anthony stated.

eBay reported its 4Q results broadly in-line with expectations. The overall GMV was up 5 percent year-over-year ex-FX, while Core Marketplace GMV grew 4 percent year-over-year ex-FX and Stub-Hub GMV climbed 30 percent year-over-year. The company announced slightly disappointing 2016 guidance, mainly on account of currency impact and continued growth challenges at Core eBay.

eBay’s shares dropped on the disappointing guidance. The shares also came under pressure due to the multiple compression across Technology stocks in 2016, which eBay had largely avoided so far, analyst Victor Anthony said.

The Buy rating reflects the view that eBay’s stock is “an attractive value play within the Internet space,” Anthony mentioned.

“eBay continues to face challenges – below industry growth, SEO challenges and sluggish sold items growth. However, we see stabilization at core (eBay’s January CA SSS came in at 4.0%, an increase from December’s 0.8%), the structured data update is progressing (expected to be 60% complete by mid-year) and should help with SEO, and active user net additions continue to increase,” the analyst commented.

Management is likely to “lever the balance sheet (2x gross vs. 3.5x max) and aggressively shrink the equity base,” the Axiom report noted. eBay’s shares are trading at a relatively low EPS multiple, despite the above-peer FCF yield of 9 percent.