eBay (EBAY)/PayPal Spin-Off Will be Determined by Core Performance - Cantor
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Rating Summary:
18 Buy, 29 Hold, 1 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 11 | Down: 12 | New: 9
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Analyst Youssef Squali of Cantor Fitzgerald discussed a potential PayPal spin-off by eBay (NASDAQ: EBAY) in a research note on Thursday. The analyst pointed to potential for deeper integration with other marketplaces post-spin. However, synergies with eBay exist. In summary, Squali said a spin-off may depend on management's ability to hit 2015 guidance.
"One of the strongest arguments in favor of a standalone-PayPal is the potential to accelerate TPV and revenue growth through PayPal's integration on other marketplaces including Amazon and Alibaba, which would make it even more valuable. A 10% penetration for PayPal on Amazon (for illustration purposes only), would add ~$13B to TPV, ~$400-500M to revenue and $70-100M to EBITDA for PayPal in 2014, by our estimate," said Squali.
"Closed-loop transaction data from eBay helps reduce PayPal's fraud losses, with PayPal's transaction loss rate at ~0.2% currently vs. ~0.4% prior to its acquisition. We estimate that if stand-alone Paypal's loss rate were to increase by ~10-20bps, it would result in ~$220-440M hit to revenue and EBITDA in FY:14, all else equal. Other synergies include eBay driving ~30% of new member growth at PayPal, eBay being a low-cost funding source and a venue of growth for BML, and eBay continuing to use its balance sheet to help Paypal make acquisitions," he said.
"Management has been in the penalty box given its failure to hit its initial 2015 guidance, having to lower expectations on the 4Q:13 call. While the new guidance seems more achievable, it is by no means a slam-dunk, as it implies some acceleration in both Marketplace and Paypal. The next few quarters' results will determine whether eBay will be able to hit the new 2015 guidance. Failure to deliver on this will increase shareholders' pressure to act, giving fodder to Icahn's position to spin-off Paypal," concluded the analyst.
Cantor Fitzgerald maintained a Buy rating on eBay (NASDAQ: EBAY) with a price target of $65.00.
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 $57.98 yesterday.
"One of the strongest arguments in favor of a standalone-PayPal is the potential to accelerate TPV and revenue growth through PayPal's integration on other marketplaces including Amazon and Alibaba, which would make it even more valuable. A 10% penetration for PayPal on Amazon (for illustration purposes only), would add ~$13B to TPV, ~$400-500M to revenue and $70-100M to EBITDA for PayPal in 2014, by our estimate," said Squali.
"Closed-loop transaction data from eBay helps reduce PayPal's fraud losses, with PayPal's transaction loss rate at ~0.2% currently vs. ~0.4% prior to its acquisition. We estimate that if stand-alone Paypal's loss rate were to increase by ~10-20bps, it would result in ~$220-440M hit to revenue and EBITDA in FY:14, all else equal. Other synergies include eBay driving ~30% of new member growth at PayPal, eBay being a low-cost funding source and a venue of growth for BML, and eBay continuing to use its balance sheet to help Paypal make acquisitions," he said.
"Management has been in the penalty box given its failure to hit its initial 2015 guidance, having to lower expectations on the 4Q:13 call. While the new guidance seems more achievable, it is by no means a slam-dunk, as it implies some acceleration in both Marketplace and Paypal. The next few quarters' results will determine whether eBay will be able to hit the new 2015 guidance. Failure to deliver on this will increase shareholders' pressure to act, giving fodder to Icahn's position to spin-off Paypal," concluded the analyst.
Cantor Fitzgerald maintained a Buy rating on eBay (NASDAQ: EBAY) with a price target of $65.00.
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 $57.98 yesterday.
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