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EBay Seen Setting Up Positively For This Year And Next, UBS Has 'Increased Conviction'

EBay Seen Setting Up Positively For This Year And Next, UBS Has 'Increased Conviction'

Shares of eBay Inc (NASDAQ: EBAY) lost more than 1.5 percent on Friday after the company disappointed investors in its second-quarter earnings report. But at the same time, some analysts found sufficient reason to remain bullish on the stock, including UBS's Eric Sheridan.

Sheridan maintains a Buy rating on eBay's stock with a price target raised from $38 to $40 after the company demonstrated improving user growth and engagement trends for the third straight quarter. The earnings report also showed stable to improving conversion, improved returns on investments along with a re-acceleration of gross merchandise value growth (excluding StubHub).

The analyst is also encouraged with the company's new $3 billion share repurchase program (see Sheridan's track record here).

On the other hand, StubHub and eBay's Classified segment both showed a deceleration in top-line results, but the second half of 2017 trends should return the two businesses to a "more attractive revenue trendline," Sheridan added.

Finally, the analyst is "less positive" on the fact that eBay's management didn't provide investors with any upward revisions to its fiscal 2017 guidance despite the topline and EBITDA beat in the quarter.

"While the initial stock reaction was negative (mostly due to inline results against recent positive stock returns), we see eBay now setting up as a very positive risk/reward for 2H 2017 & 2018," the analyst wrote.

BMO: 'Still Waiting'

While Sheridan is bullish on eBay's outlook and recommending buying the stock, BMO Capital Markets' Daniel Salmon thinks investors need to be patient and sit on the sidelines for now.

Salmon maintains a Market Perform rating on eBay's stock with an unchanged $36 price target as the encouraging aspects of the earnings report doesn't add clarity to the longer-term picture (see Salmon's track record here).

Among the encouraging aspects of the quarter include an expansion in the Marketplace take-rate and an acceleration in GMV growth, the analyst noted. In fact, the report showed that eBay's increased investments in the category are showing positive results and could provide upside to international GMV growth as management continues to expand to international markets.

But on the other hand, StubHub's negative growth was a surprise; however, as comparisons get easier in the bottom half of 2017, the unit could see a return to positive growth, Salmon argued. Nevertheless, StubHub's performance in the quarter should make investors "more cautious" moving forward.

Bottom line, visibility into the longer-term impact of the structured data initiative on revenue growth "remains unclear" and investors should wait to see signs of a sustained "material acceleration" before becoming bullish on the stock.

Related Links:

From Amazon To Zynga: Your Internet Stock Q2 Preview And Morgan Stanley's Top Picks

EBay Is A Rare Value Story With Several Paths To Value Creation


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