UBS Expects eBay (EBAY) Multiple Expanion

UBS analyst Eric Sheridan, reiterated his Buy rating on shares of eBay (NASDAQ: EBAY) and raised the price target to $34.00 (from $32.00). Improving US GMV trends & mgmt. commentary about "green shoots" on the back of structured data initiatives leaves us reiterating our Buy rating and raising our price target to $34 after a very solid beat/raise quarter from eBay. While there continues to be a 12-24 month road ahead of investing in growth (structured data, branding, traffic initiatives), the analyst expects the debate on structured data to increasingly shift from "if" it will be successful to the slope of forward progress.

eBay provides a number of paths to value creation: a) improving core operations (supported by structured data & mobile); b) capital allocation decisions (buybacks, M&A) and potential non-core asset monetization; and c) further value realization for faster growing businesses (StubHub, Classifieds). Despite a recent improvement in stock performance (1176 bps vs SPX since Jun 30th), the analyst still sees a solid risk/reward skew to the upside that could result from the right mix of growth and s/h returns driving a rerating of the shares.

Positives:

1) StubHub continuing to surprise to the upside with 35% GMV growth & 40% revs growth (FX-neutral)

2) acceleration in the Marketplace business (including positive mgmt commentary on SEO & structured data initiatives)

3) lower contra rev and sales & marketing expense than expected; d) raised full-year revs and EPS guide (despite growth investments in 2H and investor macro worries); & e) Board approval of an additional $2.5b stock buyback (& $500mm stock repurchased in Q2).

Negatives:

1) active buyer growth of only 4% YoY (despite ~200 bps easier comp)

2) marketing services growth decelerating 800 bps ex-FX vs. Q1 (on lower ad load/monetization & shift to mobile)

3) upward pressure on product development opex (though mgmt. comments clearly point toward growth initiatives as driver).

For an analyst ratings summary and ratings history on eBay click here. For more ratings news on eBay click here.

Shares of eBay closed at $26.99 yesterday.

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