Color on AmTech Downgrade of eBay (EBAY)

July 17, 2008 11:52 AM EDT

American Technology Research downgrades eBay (Nasdaq: EBAY) from Neutral to Sell and lowers its price target 43% from $35 to $20.

The firm points out that while eBay did beat the Street's Q2 earnings estimates, upside was driven primarily by strength from PayPal. Further, as eBay offered Q3 guidance that was slightly below the Street, AmTech believes that the "miss makes the year appear back-end loaded and we don't think this market will give eBay the benefit of the doubt."

AmTech notes that eBay saw only 8% growth in its gross merchandise value during Q2, which was 400 basis points lower than in Q1. The firm attributes this slowdown to

1. deteriorating consumer spending patterns reduced conversion rates and average selling prices and
   
2. growth in ultra-high ASP Motors category fell off a cliff.

AmTech believes that "eBay shares deserve a material valuation discount to peers." The firm believes that the market has now accepted that eBay's earnings growth, which has always been much higher than GMV growth, is trending toward its GMV rate. Considering "the perpetual deceleration in eBay's GMV growth", AmTech dabbles with the idea that this rate could move to 0% or even negative in upcoming quarters. "Given the fact that eBay is pushing through major changes in the midst of a difficult time for U.S. and European consumers, we think the risk/reward favors betting that it will happen."

Lastly, the firm mentions that "yet another high-level executive is leaving eBay."

eBay, Inc. and its subsidiaries provide online marketplaces for the sale of goods and services, online payments services, and online communications offerings to individuals and businesses in the United States and internationally.

Related Categories

Downgrades

Stocks Mentioned

Related Entities

• American Technology Research

Add Your Comment

Name

Subject

Body

Verification can't see the text?
click here to refresh the image.
what's this?