Morningstar

Competitive Headwinds Raise Questions for eBay

EBay's focus on improving its brand positioning and user experience is encouraging, but structural headwinds remain.

Securities In This Article
eBay Inc
(EBAY)

With our emphasis on economic moats, we're encouraged by

We still view eBay's structured data approach as a worthwhile endeavor that improves the buyer experience/conversion rates, search engine optimization, and dynamic pricing; these should keep marketplace GMV and revenue growth in the low single digits for the foreseeable future. For comparison, constant-currency marketplace GMV grew 4% in the quarter, a slight deceleration versus 5% growth in the prior quarter, while marketplace revenue grew 5%, a slight acceleration versus earlier quarters due to the reduced promotional activity. However, this still implies a sizeable gap to current industry trends. Certainly, StubHub and Classifieds, where constant-currency revenue increased 32% and 14%, respectively, should help to fill this gap and give us greater comfort with our narrow moat. That said, these platforms will take time to grow into material cash flow contributors (relative to the marketplace) and could face increased competition.

We're not planning to change our $28 fair value estimate, outside of adjustments for the sale of its stake in MercadoLibre (expected to yield gross proceeds of $1.2 billion). eBay's updated 2016 guidance--revenue of $8.95 billion-$9.0 billion, adjusted operating margins at the low end of 31%-33%, and adjusted EPS of $1.85-$1.90--appears feasible, especially after factoring in reduced contra-revenue factors and increased brand marketing spend.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

More in Stocks

Our Top Pick for Investing in US Renewable Energy

Utility-scale solar and battery storage installations are poised to set records in 2024.
Brett Castelli

How to Measure a Stock’s Uncertainty

Morningstar’s Uncertainty Rating helps investors understand the risks associated with an investment and how that may influence a decision to buy.
Emelia Fredlick

How to Determine Whether a Stock Is Cheap, Expensive, or Fairly Valued

The Morningstar Rating for stocks gauges how a stock’s price compares with what our analysts think it’s worth.
Emelia Fredlick

About the Author

R.J. Hottovy

Sector Strategist
More from Author

R.J. Hottovy, CFA, is a consumer strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He is responsible for consumer discretionary and staples research. He has covered the consumer sector as an analyst and director of global consumer equity research for Morningstar since joining the company in 2008, and specializes in a broad range of consumer categories including restaurants, footwear and apparel retailers, consumer electronics retailers, fitness clubs, home improvement and furnishing retailers, and consumer product manufacturers.

Before joining Morningstar, Hottovy was a director and senior stock analyst for Next Generation Equity and an analyst for William Blair & Co., specializing in a wide range of retail and consumer product companies. He also spent two years at Deutsche Bank, covering waste management, water utilities, and equipment rental stocks.

Hottovy holds a bachelor’s degree in finance and a second degree in computer applications from the University of Notre Dame, where he graduated magna cum laude. He also holds the Chartered Financial Analyst® designation and is a member of the CFA Institute and the CFA Society of Chicago.

Sponsor Center