eBay Inc PT based on valuation perspective
In a recent note to investors, Susquehanna analysts Brian Nowak and James Friedman explained that their price target for the shares of eBay Inc (NASDAQ:EBAY) was derived from a valuation perspective.
According to the analysts, “Our base case arrives at a $56 per share value for eBay. This is based on applying ~14x 2015 earnings to the Marketplaces (a PEG of 1.4x). We value PayPal using a range of 18x to 22x earnings, with a midpoint of 20x, or ~$31 per share. This is roughly in-line with Visa and MasterCard.”
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eBay Inc – Debate about appropriate multiples for Marketplaces, PayPal
Nowak and Friedman suggested the possibility of ongoing debates regarding the appropriate multiples for Marketplaces and PayPal. According to them, their base case Marketplaces of~14x multiple is a PEG of 1.4x, every 1x change in multiple add/subtracts ~$2 from the equity value.
The analysts said their base case for the entity was warranted citing the reason that it is one of the only ways to invest in a large e-commerce.
On the other hand, Nowak and Friedman said PayPal will likely be comped vs. Visa Inc (NYSE:V) and Mastercard Inc (NYSE:MA). They noted that the payment service of eBay Inc (NASDAQ:EBAY) is growing modestly faster compared with Visa and Mastercard, but its margins are lower.
In addition, the analysts also perceived greater challenges for PayPal. According to them, ‘We have a hard time getting overly bullish on PayPal’s potential for margin expansion.”
Nowak and Friedman cited several reasons including its intention to invest in growth and its higher margin on eBay Inc (NASDAQ:EBAY) business is decelerating. Furthermore, they believed that PayPal need to invest harder off eBay to compete. They emphasized, “Every 1x change in the PayPal multiple adds/subtracts ~$1.25 from our equity value.”
eBay 2015 EPS, Marketplaces forward estimates lowered
Nowak and Friedman lowered their forward estimates for Marketplaces as they analyzed the sum of the parts value of eBay to “account the continued negative ChannelAdvisor, ongoing challenges and headwinds.
Currently, the analysts expected the company’s North American Marketplaces GMV to increase 9% in 2015, down from their previous estimate of 10%. They also anticipated that eBa to invest more on advertising and couponing in an effort to re-accelerate growth.
Nowak and Friedman reduced their Marketplaces margins estimate to 37.3% from 37.5%.They also reduced their 2015 EPS estimate for the company from $3.36 to $3.28.