eBay Inc (EBAY): Little Reason For Current Valuation, Says Topeka

Updated on

Topeka Capital Markets analyst Victor Anthony downgrades eBay Inc (NASDAQ:EBAY) from Buy to Hold as the company’s guidance is lowered on 2014/2015 estimates.

We are downgrading eBay Inc (NASDAQ:EBAY) to a Hold from a Buy and reducing our price target to $60 from $64, following reductions to our 2014/2015 estimates on lowered company guidance. While shareholder activism could keep a floor on the share price near-term, we see few compelling reasons to buy the stock at current valuation levels, with an after-hours share price that implies a PEG of 1.6x (12% 3yr EPS CAGR). Moreover, challenges growing the core above e-commerce, challenges monetizing off-line initiatives, and stepped-up investments at Payments, are likely to limit management’s ability to post beat and raise results over the next year. Further, newer international markets and cross-border initiatives are likely to take time to contribute financially. We applaud management’s change in philosophy on buybacks, that is, to be opportunistic, and see an opportunity for added leverage to drive equity returns.

Proposal for a spin of PayPal

eBay Inc (NASDAQ:EBAY) announced that it has received a notice from Carl Icahn indicating that he has nominated two of his employees to its Board of Directors and submitted a non-binding proposal for a spinoff of PayPal into a separate company. Carl Icahn has an 0.82% economic interest in the company. CEO John Donahoe stated that the board is unified in keeping eBay and PayPal together and he sees dissynergies in separating the two. He delivered a spirited defense for keeping the two together including: 1) eBay accelerates PayPal’s success-eBay generates 30% of PayPal’s new users at zero customer acquisition costs; 2) eBay data makes PayPal smarter-risk management; and 3) eBay funds PayPal’s growth-1/3 of PayPal’s revenues and 1/2 of its profits come from eBay. eBay also announced an additional $5B share repurchase authorization.

eBay’s 4Q13 results in-line

Reported revenues of $4.53B, +13% YoY, was essentially in-line with the TCM and consensus estimate of $4.55B, while Non-GAAP EPS of $0.81 was in-line with TCM but a penny above consensus. U.S. Non-Vehicles growth of 13.8% YoY was essentially in-line with our estimate of 13.6%. FX-Neutral TPV growth was 25% YoY, in-line with 3Q off a 2pt tougher comp, and Payments revenue growth of 20% YoY Ex-Fx, was in-line with 3Q off a flat comp.

2014 EPS guidance below consensus; 2015 guidance lowered

Full year 2014 revenues of $18.0-$18.50B (12%-15% YoY) compares to the consensus of $18.5B, while Non-GAAP EPS of $2.45 to $3.00 (9%-11% YoY), is below the consensus of $3.12 (+16% YoY). 2015 revenue guidance was lowered to $20.5B-$21.5B from $21.5B-$23.5B and compares to the consensus of $21.3B, while the Non-GAAP EPS guidance was lowered to growth of greater than 10% YoY vs. the 15% consensus estimate.

Reducing estimates for eBay

Our full year 2014 revenue estimate reduces by 4% to $18.27B and our Non-GAAP EPS estimate reduces by 4% to $3.00. Our 2015 revenue estimate reduces by 4% to $21B and our Non-GAAP EPS estimate reduces by 8% to $3.36, implying 12% EPS growth.

eBay’s valuation

Our $60 price-target for eBay Inc (NASDAQ:EBAY) is based on a sum-of-the-parts analysis that applies multiples to the Marketplaces (8x-9x), Payments (12x-13x), and Enterprise (6x) segment 2015 EBITDA estimates. eBay is valued at 19.2x our 2014E adjusted EPS estimate.

Leave a Comment