Despite eBay's 'Soft' Q3 And Disappointing Q4 Guidance, Citi Keeps $34 PT And Buy Rating

Shares of eBay Inc EBAY fell 8 percent in Thursday’s pre-market after the company reported a soft Marketplace GMV and active buyer growth for the third quarter and disappointing fourth-quarter guidance amid heightened expectations.

Total GMV grew 5.5 percent, though U.S. Marketplace GMV decelerated on an easier comp. EBay added over 1 million active buyers in the third quarter, bringing the total to 165 million global active buyers.

Although eBay’s adjusted EPS and revenue beat consensus estimates, the company’s outlook for the key holiday shopping quarter was disappointing, triggering concerns among investors.

For the fourth quarter, the company sees adjusted EPS of $0.52–$0.54 on revenue of $2.36 billion–$2.41 billion. Street expects EPS of $0.54 on revenue of $2.40 billion.

Related Link: EBay's Ongoing Turnaround Continues To Face Risks; Morgan Stanley Ups Target To $26

For the full-year 2016, eBay expects adjusted EPS of $1.85–$1.90 on revenue of $8.95 billion–$9.0 billion versus consensus view of $1.89/$8.95 billion.

“Expectations were for upside in 3Q16 and for positive momentum clearly reflected in 4Q16 guidance, and unfortunately the report fell short of those expectations,” Citi analyst Mark May wrote in a note.

May still has a Buy rating on the stock with a target price of $34, saying the stock’s valuation is not reflecting the potential of the company’s growth improvement initiatives.

“Moreover, we see downside as limited given: 1) the valuation (12x EV/FCF, 8 percent FCF yield); 2) the company’s ability to continue to significantly shrink its share base via buybacks; and, 3) eBay’s potential strategic M&A value,” May added.

Shares of eBay closed Wednesday’s trading at $32.52. In the pre-market hours Thursday, they dropped 8.43 percent to $29.78.

Full ratings data available on Benzinga Pro.