RBC's Mahaney Turns From 'Skeptical' To Bullish On eBay

eBay Inc EBAY reported fourth-quarter results Wednesday that included a slight revenue miss and in-line earnings. But digging beyond the headline numbers reveals four reasons why investors can turn aggressive on the stock, according to RBC Capital Markets. 

The Analyst

RBC Capital Markets' Mark Mahaney upgraded eBay's stock rating from Sector Perform to Outperform with a price target boosted from $39 to $51.

The Thesis

The Q4 report was overall "solid," Mahaney said. Looking beyond the headline numbers reveals four themes, he said: 

• Gross merchandise value trends ranged from neutral to positive, including a 3-percent acceleration in U.S. GMV.
• A 7-percent GMV U.S. Marketplace — excluding StubHub — acceleration, the strongest seen in years,
• Marketplace metrics were "neutral" given a 5-percent active buyer growth and 2-percent sold items growth.
• StubHub is showing "robust" year-over-year GMV growth of 16 percent.

Mahaney said he's been "skeptical" of eBay's business for many years, but three factors have changed that warrant a move to an Outperform rating, he said. They are:

• A series of improvements in the U.S. market led to sustainable GMV growth, but many improvements haven't been fully rolled out in the U.S. and internationally.
• A move to intermediate payments through the Ayden partnership creates a "material" new revenue and profit driver of at least 10 percent over time.
• A "dramatic" ramp in share repurchases will meaningfully boost earnings per share.

Finally, eBay continues to face a large secular growth opportunity as the online retail space is only 10-percent penetrated, Mahaney said. 

Price Action

Shares of eBay hit a new 52-week high of $46.94 on Thursday and was trading higher by around 15 percent on the day.

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