Wall St. Analysts’ thoughts on eBay Analyst Day….

March 12, 2009

ChannelAdvisor ChannelAdvisor By ChannelAdvisor

Yesterday eBay had their first Analyst day in three years.  We had lots of coverage here at eBay Strategies and are continuing with the Wall St. reaction followed by one last summary piece later today. Here’s a guide to the coverage:

Usually after an event like this the stock analysts issue reports.  These reports include interesting nuances that in many cases were picked up in side discussions and what-not.  It’s also interesting for eBay sellers to understand what’s going on as frequently marketplace-moving changes are introduced at a high-level at these events.  Strategically, understanding where eBay is going can help sellers plan their strategies for the coming year(s) and plan for where eBay should be in that mix.
Analysts tend to use these opportunities to also change their view on a company.  Analysts have some combination of a rating (buy, sell, hold, underperform) and some have a price target.  Movements in these can move markets of course, but I also look at them as signals.  In this case, everyone in the eBay world is looking for some sign of the bottom of the marketplace’s problems and when analysts get bullish that would be a strong signal.
Here’s a quick recap of the analyst notes I’ve seen so far this am.  PT is an abbreviation for Price Target and as a point of reference the stock is in the $11-12 range right now.  These are in the order that I received them and the bolding and comments marked (editorial) are my own.  I’ve put the analysts into three buckets based on their ratings – Bullish, Neutral, Bearish.
  • Marianne Wolk – Susquehanna (say that three times fast) – $18PT  (Editorial: Marianne had lots of paypal that I didn’t put here as we focus on the marketplace biz)
    •  We believe there is value to the core eBay
      franchise, which has more than 86.3 mln active worldwide users as of 4Q08 and
      ~17-18% domestic eCommerce share in 4Q08. Many of these users are loyal
      buyers/sellers, and with stronger company actions and a more benign economic
      backdrop, we believe usage and monetization levels could improve in time
      (albeit our estimates assume this is not until 2010). 
    • The major change we heard at the analyst day is
      that the company expects to incorporate more classified listings and
      advertising with the search results for users.
       (Editorial – more advertising – GREAT!)
  •   Heath Terry – FBR – OUTPERFORM – $16PT
    •  While
      there is significant execution risk as the company attempts to create a
      “New eBay”, at less than 6x forward EBITDA we believe investors are
      being paid to take that risk. We believe the stock represents an attractive
      long-term risk/reward, as our $16 price target equates to a 6x EV/EBITDA
Neutral-ish (is that a word?)
  • Spencer Wang – Credit Suisse- PT – $15 – Neutral
    • Overall,
      we are encouraged by management’s initiatives to maintain its role as a key
      connection between buyers and sellers of goods, to extend PayPal’s scale, to
      “transform” Marketplaces, and to accelerate growth at Skype.
  • Gene Munster – Piper – Neutral – no PT
    • We are incrementally more positive on eBay, given potential
      changes to the marketplace platform, which could come late in
      2009, according to the company. We remain Neutral on EBAY shares, as
      ultimately, we need to see changes to the platform that improve the
      user experience and arrest market share losses.
  • Collin Sebastian – Lazard – HOLD –
    •  2011 targets provide an optimistic
      scenario assuming a rebounding economy. Highlighting the Analyst Day, management
      provided a range of 2011 revenue and margin targets, under the assumption
      that the economy rebounds next year and that growth in PayPal, Skype, and
      marketing services continues to offset the declining auction marketplace.
      In the near term we expect 2009 to be another challenging year for eBay in
      the midst of transition in a weak economy
  •   Imran Kahn – Neutral –
    •  …we continue to be cautious on the story, as many of the announced
      changes may not fully materialize until 2011. Additionally, we believe
      competition from Amazon and other online commerce sites could create further
      risks to the companys financial targets.
  •   Jim Friedland – Cowen – Neutral –
    •  (1) the company is actively addressing the
      challenges in its core marketplaces business, but we think its three-year
      revenue and margin projections are too high; (2) PayPal is well positioned to
      demonstrate continued growth; (3) Skype is for sale in our view; and (4) a
      dividend is unlikely and management seems to be unwilling to repatriate its
      cash position for a buyback due to tax implications.
    •  We think competition from alternative channels,
      such as Amazon and Google Search, is a serious threat to the marketplaces
      business. Amazon and Google offer attractive seller pricing (it is free to
      upload inventory to Google’s product search database). Further, we believe the
      superior buying experience on Amazon and search experience on Google reduces
      the value of the eBay platform for buyers and sellers. Even though eBay is
      dedicating significant resources to enhancing search, improving the user
      interface, and other buyer/seller features, we believe it will be difficult for
      the company to catch up to Amazon.
  •   Mary Meeker – Morgan Stanley – equal-weight
    • eBay noted 2009 marketplace GMV should grow slower than market (we assume -12% Y/Y); 2010 should grow with market (we assume +8% Y/Y) while 2011 should grow faster than market (we assume only +4% Y/Y).
  •   Derek Brown – Cantor – HOLD – $13 PT
    • On the one
      hand, we were very impressed by mgmt, most (if not all) of whom were
      presenting at his/her first Investor Day; its willingness
      to admit past errors/oversights in strategy, product development,
      technology and customer relations; and, its unyielding
      commitment to drive “foundational” change within the core of eBay
      (both its culture and Marketplace franchise); on the other, it
      seems clear to us that eBay’s revitalization efforts remain very
      much a work in progress and we think hopes for a healthy
      recovery by 2011 may be premature.
  • Ben Schachter UBS – $14 PT, Neutral
    • Management expects the Marketplaces division to grow
      slower than the market in 2009, with the market in 2010 and outpace the market
      in 2011.
      EBAY expects to bring large
      scale changes to its Marketplaces division that will take time to implement.
      The company is attempting to improve its user experience by expanding efforts
      to include more liquidation/out-of-season products and by overhauling its
      search function to bring more relevant searches to the forefront (highlighting
      inventory from across the EBAY ecosystem). Even if we assume they can execute
      on this strategy and stabilize the marketplace, it will take time and guidance
      does not imply real growth until 2011. We continue to remain cautious on
      management’s ability to execute and expect the stock to reflect more near-term
      execution than promises the company makes about 2011.
  • James Mitchell – Goldman (Golden Slacks as Cramer says) – $14 PT  – Neutral
    • We view
      management’s marketplace objective of focusing on the “secondary”
      (used/discontinued/discounted/ end-of-season items) rather than “primary” (new/in-season
      items) category as a rational strategy for minimizing head-to-head conflict
      with Amazon. However, “secondary” may account for a declining portion of
      overall e-commerce over time, potentially condemning eBay’s marketplace to
      perpetually under-grow the e-commerce market.
  • Christa Quarles – TWP – Market Weight
    • We believe eBay’s
      strategy makes sense and the actions the company has taken thus far (changing
      management, putting technology at the centrepiece, strategically cutting costs
      and reinvesting in growth) are in the right direction. However, it’s still
      unclear if core marketplace will look as management defines it in 2011 (e.g.
      the margins may be 25% not 35-45%) and it may take much more time to fix,
      particularly if the macroeconomic environment stays weak. We remain on the
      sidelines, but could start to see some value investors with long time horizons
      starting to get more interested in the story. 
  • Justin Post – Merrill Lynch – PT – $13 – UNDERPERFORM
    •  Upbeat presentation, but one message from the
      day was that eBay was still early in their turnaround and that things would get
      worse before they would get better.
  •   Jeetil Patel – SELL – $11 PT
    • While filled with long- term optimism, we
      thought the analyst event lacked near-term reality with respect to the current
      deteriorating fundamentals. In light of no near-term (2009) guidance,
      anticipate acceleration in growth, competitive pressures and economic backdrop,
      we think it’s difficult to put much credibility into the 3-year plan. We think
      investors should gauge eBay against near-term performance. 
    •  Near–term, the marketplace business is expected to
      underperform industry growth trends before flattening out next year and
      reaccelerating in 2011 – representing an optimistic view from eBay, we think .
      Clearly, this business represents the cash cow, and risk remains on declining
      demand, high seller commissions and lack of interface changes. We think the
      Skype unit is actually performing well, and management should hold on to this
      business model.
    •  The problem in the core lies with lack of demand, seller fees running too high and an e-commerce interface that is inconsistent with the industry norm (think product orientation, not listings metaphor). It is quite difficult for sellers to generate cash flows if they have to discount pricing (relative to other sites and direct) and maintain in-line to above-market commissions on selling on the platform, especially with weakening demand.
That’s all folks – later today, seller view of all the news.
I may update this post as more items come in.  If I do, I’ll highlight them with three stars like this ***. I think the funniest thing I read was from Christa@TWP who led with: “Should eBay Change ticker to PYPL?”
Later today I’ll put together a ‘what does this mean for sellers’ post as we’re getting lots of inbound questions around this from customers.

Seeking Alpha Disclosure – I am long google and Amazon