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EBay's Ongoing Turnaround Continues To Face Risks; Morgan Stanley Ups Target To $26

EBAY | October 20, 2016

Morgan Stanley’s Brian Nowak believes the Q3:16 results reported by eBay Inc (NASDAQ: EBAY) highlight that the company’s ongoing turnaround is still facing execution risk and is likely to take more time than bulls expect, while being unlikely to lead to meaningful upward revisions in expectations.

Nowak reiterated an Underweight rating on the company and raised the price target from $24 to $26.

Slowing Growth

For Q3, eBay reported 4 percent year-on-year growth, ex-FX and ex-StubHub, in gross merchandise value (GMV) for Marketplaces, below the estimate and representing a 100 bp year-on-year deceleration from Q2.

“eBay attributed the slowdown to a strategic decision to shift ad spend toward more branded channels (away from discounting and performance marketing) that typically take multiple quarters to have an impact,” the analyst mentioned.

Continued High Ad Spend

The company expects its increased brand ad spend to continue in Q4 and 2017, which Nowak believes could be the right decision for the long term, since eBay is working on repositioning itself in the consumer’s mind.

On the other hand, global active buyers increased by 1 million sequentially, lower than the estimate and the consensus, which the analyst sees as a cause for concern, since “eBay will need to reinvigorate user growth if it hopes to drive faster GMV growth.”

Nowak believes eBay is once again likely to see slower growth than the overall U.S. personal consumer expenditure in its largest market, expecting U.S. Marketplace, ex-StubHub to grow 3 percent in 2017.

At last check in Thursday's pre-market, eBay was down 8.52 percent at $29.75.

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