Morgan Stanley Downgrades eBay On Slower GMV Growth

Morgan Stanley's bullish case for eBay Inc (NASDAQ: EBAY) was based on a positive outlook for the core marketplace business -- a thesis that hasn't played out as expected.

The Analyst

Morgan Stanley's Brian Nowak downgraded eBay from Overweight to Equal-Weight with a price target lowered from $55 to $33. (See Nowak's track record here.)

The Thesis

Morgan Stanley turned bullish on eBay's stock in April, but the company's core marketplace business showed a slower than expected gross merchandise value (GMV) growth in the three reported quarters, Nowak said in a note. The poor performance prompted the analyst to revise his 2019 GMV growth estimate from 6 percent to a low-to-mid-single digit rate.

The downward revision to GMV estimates directly impacts eBay's stock multiple, which remains historically linked to U.S. GMV growth. As such, new business lines including payments and advertising and a focus on improving efficiency takes a back seat to GMV growth which is "holding back" a higher stock multiple.

The research firm's revised $33 price target still implies upside potential from current levels and based on a discounted cash flow valuation through 2025. However, Nowak said other names in the internet space offer better upside potential with less execution uncertainty.

For the stock to gain 30 percent, the company would need to grow its U.S. GMV by 3 percent which will be difficult to accomplish at a time of growing competition from large retailers and other online marketplace platforms.

Price Action

Shares of eBay were trading lower by 1.3 percent early Wednesday morning. Shares closed Tuesday at $29.05.

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