The Street's Mixed Reaction To eBay's Q1

Online marketplace eBay Inc EBAY reported Tuesday with first-quarter results that came in better than expected — but not all Street analysts are impressed with the print.

The Analysts

• Morgan Stanley's Brian Nowak maintained an Equal-weight rating on eBay with a price target lifted from $33 to $34.50.
• Canaccord Genuity's Michael Graham maintained at Hold, price target lifted from $33 to $38.
• D.A. Davidson's Tom Forte maintained at Buy, unchanged $44 price target.
• Raymond James' Aaron Kessler maintained at Outperform, price target lifted from $39 to $44.
• Benchmark's Daniel Kurnos maintained at Buy, price target lifted from $42 to $45.

Morgan Stanley: Marketplace Is Deteriorating

Throughout the first quarter, eBay's core marketplace deteriorated as US gross merchandise volume fell 6 percent year-over-year versus a 1-percent decline in the prior quarter, Nowak said in a note. Meanwhile, eBay's global GMV was 1-percent lower year-over-year (excluding FX) versus expectations of 1-percent (ex-FX) growth.

Part of eBay's poor marketplace performance can be attributed to management's prior decision to strategically lower ROI promotional spend in favor of more profitable customer growth, the analyst said. While this supports immediate-term metrics, the company needs to invest to grow over the longer term, he said. 

eBay continues to compete against much larger, faster-growing and smarter competitors that offer consumers superior pricing, Nowak said. This makes eBay's core marketplace business "a structurally declining asset in a growth industry," the analyst said. 

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Canaccord: 4 Key Highlights

Graham named four key takeaways from eBay's first-quarter report:

• Active buyer growth was steady at 4 percent, but marketplace GMV fell 6 percent.
• The company is showing progress in managed payments, as its platform has so far enabled $363 million of GMV.
• eBay bought back $1.5 billion of its stock in the first quarter, bringing its total to $12.8 billion (25 percent of outstanding shares) since separating from Paypal Holdings Inc PYPL.
• Management lifted the mid-point of 2019 revenue guidance from $10.8 to $10.9 billion.

DA Davidson: Activist Investors Deserve Credit

Exiting eBay's first-quarter report, it's apparent the involvement of activist investors "brought out the best" in the company, Forte said in a research report. For example, activists pushed for a dividend, increased buybacks, studying the sale of StubHub and/or Classifieds and a commitment to improving operating results, the analyst said. 

Encouragingly, eBay's beat-and-raise report is also a reflection of management's efforts to improve the business prior to the public involvement of activist investors, Forte said, adding that investors should be "very impressed" with the print. 

Raymond James: 3 Positives, 2 Negatives

The eBay earnings report includes three positive takeaways and two negative readouts, Kessler said in a research report.

On the positive side:

• Non-GAAP operating margins improved 190 basis points from last year due to low ROI marketing and good expense control.
• Growth in marketplace revenue can be traced to strength in promoted listings, which rose 110 percent from last year to $65 million, and lower ROI marketing investment (contra-revenue).
• Management announced a "modest" lift to 2019 revenue guidance.

Kessler named two negative readouts:

• U.S. GMV declined 7 percent from a reduction in marketing and an internet sales tax.
• StubHub GMV fell 2 percent due to a weaker college football championship game and Super Bowl.

Benchmark: Revving The 'Profit Engine'

The e-commerce company beat estimates on the revenue line by $60 million, which can be attributed to a nearly 80-basis point year-over-year increase in its marketplace take rate, Kurnos said in a research report. eBay still beat expectations despite an almost $700-million miss in GMV, he said. 

eBay said it saw a significant decline in contra-revenue as a primary driver along with higher AOV sales, the analyst said.

At the same time, there was no near-term impact on active buyer growth, which matched Benchmark's 180-million estimate.

Bottom line: eBay bears are likely to point out inefficient spend and question its ability to reaccelerate growth, Kurnos said. The performance in the first quarter is likely to result in a sustainable higher take rate, along with a "healthier" GMV base from which eBay can grow, the analyst said.   

Price Action

Shares of eBay were trading down 1.06 percent at $38.11 at the close Thursday.