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After 'Sluggish' Q4 Print From eBay, Sell-Side More Focused On 'The Elephant In The Room'

January 30, 2019 12:34 pm
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E-commerce company eBay Inc (NASDAQ:EBAY) reported fourth-quarter results Tuesday, days after activist investor Elliott Management announced a stake of more than 4 percent. Here's how the Street reacted.

The Analysts

  • Barclays' Ross Sandler maintains an Overweight rating on eBay's stock with a price target lowered from $43 to $41.
  • Susquehanna Financial Group's Shyam Patil maintains at Positive, price target lifted from $33 to $43.
  • Benchmark's Daniel Kurnos maintains at Buy, price target lifted from $41 to $42.
  • Raymond James' Aaron Kessler maintains at Outperform, price target lifted from $35 to $39.
  • KeyBanc Capital Markets' Edward Yruma maintains at Overweight, unchanged $43 price target.

Barclays: 'Sluggish' Q4; What About Elliott?

Susquehanna views eBay's Q4 as "sluggish," with revenue coming in as expected and earnings coming in 4 percent better than expected, Sandler said in a Tuesday note. 

Management didn't "address the elephant in the room," which is Elliott Management's proposal of spinning off StubHub and eBay's classified properties, the analyst said. 

The activist investor may be presenting the right strategy given the "scarcity value" of the assets and strong interest among private equity buyers to gain exposure to the global classifieds market, Sandler said. Over time, eBay's board of directors will likely "explore these options more seriously," as divesting the assets will push eBay's stock notably higher from its current level, he said. 

Susquehanna: Break Up The Company

In conjunction with eBay's earnings report, the company declared a quarterly dividend — which is "good to see," but "not good enough," Patil said in a Wednesday note. As a base case, the company can unlock $13 per share for the classifieds and $5 for StubHub in a sale, which would then value the core eBay platform at $26 — or the stock at $43 per share, the analyst said. 

Classifieds and StubHub are viewed by eBay as important assets to its overall business, but the company did not offer specific commentary as to why, according to Susquehanna. 

Related Link: Activist Investor With A Plan For eBay Boosts Stock

Benchmark: Bright Spots In Q4

Despite a mixed earnings report that's notable for U.S. gross merchandise value excluding StubHub falling 1 percent year-over-year, there were several bright spots, Kurnos said in a Wednesday note: 

Promoted listing revenue rose 150 percent from last year to $80 million and hit the $200-million mark for the full year.

Operating income margin came in better than expected from healthy G&A leverage.

Management said it will slow down top-of-funnel spend.

The new dividend could at the very least limit downside in the stock in the face of a weak revenue outlook.

Raymond James: Positives Outweigh Negatives

The 2019 revenue and GMV outlook from eBay implies the company will see a slower level of growth in 2019, Kessler said in a Wednesday note. The company's strategy is one of focusing less on marketing in favor of gaining more profitable new buyers, he said, adding that this should result in 100 to 200 basis points of non-GAAP operating margin improvements in 2019.

KeyBanc: Patience Is Low

Investors are losing patience with the improvement of eBay's business, which could prompt the company to create shareholder value through divesting certain assets, Yruma said in a Tuesday note.

Under a sum-of-the parts valuation model, the research firm estimates the classifieds business to be worth $11.42 to $15.86 per share, StubHub at $4.34 to $4.95 per share and the core eBay platform at $32.59 to $48.88.

This implies a total per share value of $48.34 to $69.70 and represents upside potential of 28-80 percent, the analyst said. 

Price Action

Shares of eBay were trading lower by nearly 2 percent Wednesday morning.

Related Link: What To Do With eBay Now? Analysts Debate

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