Thursday, April 19, 2007

Color on quarter: eBay (NASDAQ:EBAY)

Several firms comment on eBay (NASDAQ:EBAY) after the co released its Q1 results last night:

- Goldman Sachs says they recommend buying eBay with 20%+ upside to their new $43 price target (was $40) with 3% higher 2007/2008 EPS estimates of $1.34/$1.62. 27% yoy revenue growth (stable 21% yoy organic), 29% EBIT growth, and 39% EPS growth in 1Q2007 increasingly make firm's 16% 2008-2011E growth outlook appear conservative. Accelerating rev/listing and GMV/listing yoy growth to 20%/12% from 11%/8% in 4Q2006 demonstrate the steady improvement in the buyer experience by better converting demand into revenue resulting in higher conversion rates and ASPs.

- Stifel notes the company was able to beat revenue expectations by 4% and EPS by 10% but the drivers were not as clean as they were in 4Q06.

Organic revenue was 21% on a year-over-year basis as compared to 27% reported growth. Acquisitions made over the last 12 months contributed 1 point to top-line growth. Foreign exchange due to a weaker dollar contributed an additional 5 points of growth. EPS strength relative to guidance was driven primarily by strong revenue contributions from non-GMV businesses, expense leverage and productivity, a lower tax rate, and benefits from a weaker dollar. Free cash flow for the quarter was $479 million , or 27% of revenue in the quarter.

Stifel says they track several metrics on a YOY growth basis: active users 10% (4% decel), marketplace net transaction revenue 22% (2% decel), PayPal 28% (7% decel), core listings 4% (6% decel), GMV ex-currency 10% (6% decel), and non-Motors GMV of $1B categories 15% (5% decel). Firm anticipates that eBay's organic growth rate will moderate into the midteens in 2008 and low teens in 2009.

They believe the company is worth 25x 2008 EV/ulFCF justifying a Buy-rating and $37 target price. eBay is a maturing, high-quality company trading at a respectable valuation. As they have said in the past, they do not believe returns in eBay shares will ever be the same as they once were but they believe the shares offer a reasonable, risk-adjusted return. Would buy on pullbacks against the $37 target.

- Banc of America says they remain positive on EBAY on expectation of continued stabilization of the Marketplace which should continue to drive improvements in ASP's, conversion rates and generally higher revenue per listing (+21% Y/Y); increasing traction and scale of key asset PayPal; other opportunities including on-platform advertising from YHOO and GOOG; and margin expansion driven by continued expense leverage in S&M and G&A lines. Significant stock buyback activity could provide support through seasonally weaker quarters.

They are somewhat concerned about decelerating GMV growth in the US in Q1 (8% Y/Y) vs. Q4 (14%). In addition, GMV growth (ex-forex) also decelerated in Q1 (11% Y/Y) compared to Q4 (17% Y/Y).

- Piper Jaffray notes eBay reported a generally solid Q1 with strength in non-GMV revenues and increasing S&M leverage, FX benefits, and a lower tax rate driving upside. Approximately $0.01 of EPS upside was from improved operating leverage and revenue upside, $0.01 from FX benefits, and $0.01 from a lower tax rate.

While the continued slowdown in core eBay listings (2% y/y) and GMV (10% y/ y currency neutral) is somewhat concerning, eBay was able to offset the lower listings and GMV through improved conversion rates and ASPs. Also, eBay continues to experience strength in the non-GMV categories, including PayPal, Skype,, and 3rd Party Advertising & Other, which grew at 28%, 119% y/y, 29% y/y, and 65% y/y.

Piper if upping their tgt to $39 from $37 while maintaining Market Perform rating.

Notablecalls: While at first glance it looks like eBay was able to pull a beat & raise quarter, most of the upside came from favorable FX and lower tax rate. Also, growth in active users was flat q/q and up only 10% y/y. Another concern is the apparent deceleration in US GMV. International is the main driver here. Can't say I see good risk/reward here. I have no view on the s-t movements.

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