eBay Faces Uncertain Future

eBay finds itself at a critical juncture with respect to an evolving e-commerce and mobile commerce landscape as well as changing seller and buyer behaviours, say analysts

R.J. Hottovy, CFA 18 August, 2015 | 5:06PM
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eBay (EBAY) has been assigned a high uncertainty rating, based on the rapidly evolving e-commerce and mobile commerce landscape and management's ability to return core GMV growth to historical levels; questions about how successful the operational and shared services agreements between eBay and PayPal will be in driving customer acquisition after the separation; and the potential for mergers or acquisitions for the company.

If management continues to strengthen its relationship with third-party sellers and expands consumer awareness of its recent Marketplaces improvements, we expect overall Marketplaces transaction growth momentum to continue. Assuming that global gross merchandise volume increases at a 6% average annual growth rate from 2015-24, compared with 3% in our base-case scenario, we would anticipate average annual revenue growth for the Marketplaces segment of 6% annually, using a slightly higher take rate than our base-case assumptions.

Even though eBay's cost structure is largely fixed, we've assumed that adjusted operating margins grow slightly faster than our base case under these assumptions – returning to pre-separation levels approaching 40% by 2024 – owing to increased scale and operating efficiencies. Our fair value estimate would be approximately $39 per share.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
eBay Inc80.59 USD5.75Rating

About Author

R.J. Hottovy, CFA  is a director of equity analysis with Morningstar.