Evercore ISI Downgrades eBay (EBAY) to Sell

Evercore ISI downgraded eBay (NASDAQ: EBAY) from Hold to Sell with a price target of $49.00 (from $52.00).

Analyst Ken Sena commented, "In Peter Thiel’s Zero to One, the PayPal co-founder claims monopoly (or at least a creative interpretation of the word) is the condition of every successful business; all failed companies are the same: they failed to escape competition. In this report, we examine eBay’s PayPal, ultimately concluding that its increased competitive risks outweigh potential rewards. The result is a lower rating on a more conservative eBay valuation ($49 from $52), which reflects below-consensus estimates."

Payment concerns center on the following:

• Increased data integration layers challenge PayPal's role. We believe the mobile challenge is just the beginning for PayPal as mobile convenience necessitates deeper data integration between demand sources (Apps, Search, Social and OS) and payment providers. This growing ability to integrate across channels (including the ability to authenticate users and retain payment information) stands to relegate PayPal to its use as a payment source, which unfortunately places it in more direct competition with larger issuers offering loyalty/rewards.
• Offering greater loyalty & rewards not a solution. Since more than half of PayPal profitability stems from ACH transactions (est. ~43% of volume), the fact that PayPal does not offer loyalty/rewards gives us some concern. Moreover, while it would seem to make sense for PayPal to follow-suit, we find PayPal-originated source volumes to pale in comparison with scaled card issuers and closed-loop payment networks (covered by Evercore ISI analyst, Brad Ball).

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 $54.54 yesterday.

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