Merrill Lynch Joins eBay Bulls Throwing in the Towel

Jon C. Ogg

It’s a bad time for eBay Inc. (NASDAQ: EBAY). The online auction and marketplace giant had a very rough end of last week with Friday’s tumble to $28.75 after an 8.9% drop for the day. The culprit here is PayPal Inc. (NASDAQ: PYPL), and now that the two companies are separated one can assume things are looking ever less cooperative between them. PayPal disclosed a preview that eBay gross merchandise valuation is decelerating, down to 3% in the third quarter from 6% in the second quarter.

Merrill Lynch downgraded eBay on Monday to Neutral from Buy. This firm previously had maintained a rather bullish stance with a $44 price objective, but that has now been cut by one-fourth to a new $33 price objective. The firm still has a far rosier view on PayPal and its growth opportunities now that it has separated from eBay.

Merrill Lynch fears that eBay appears to be growing more in line with retail than e-commerce. The firm’s Justin Post also assumes now that eBay is contemplating cost cutting or announcing other broader strategic actions.

Monday’s downgrade came with lowering estimates calling for 5% growth in 2019. Third quarter 2018 revenue and earnings targets were lowered from $2.66 billion and $0.56 per share to $2.62 billion and $0.54, respectively. That is under what it shows as a Wall Street consensus target of $2.66 billion in revenues and $0.55 per share earnings.

Justin Post further said:

While the negative news on eBay’s third quarter is now known by the Street, and the third quarter call may highlight important positive strategic changes, we are downgrading to Neutral as eBay appears to be increasingly underperforming the eCommerce industry with no easy fixes. … We remain constructive on eBay’s advertising opportunity, and see EPS upside potential on cost cutting, but also see potential for further GMV deceleration to weigh on the stock.

Merrill Lynch does still maintain the view that eBay is a relatively defensive play on the secular growth of e-commerce. After Friday’s big drop of almost 9%, eBay shares were down 1.7% at $28.24 shortly after the opening bell on Monday. eBay has a 52-week trading range of $28.21 to $46.99, and investors should take note that the 52-week low was put in on Monday morning.

PayPal is still rated as Buy at Merrill Lynch, and the firm’s price objective from last week was $102. PayPal shares were last seen down 0.2% at $84.55 on Monday morning, in a 52-week range of $68.61 to $93.70.