Wednesday, October 15, 2008

eBay (NASDAQ:EBAY): Merrill Lynch downgrades to Sell

Two firms quite negative on eBay (NASDAQ:EBAY) this morning:

- Merrill Lynch is downgrading ebay (NASDAQ:EBAY) from Neutral to Underperform with PO of $19 due to company specific issues and market share losses. They would expect eBay to Underperform the group if the sector rebounds. While their $1.87 EPS for ‘09 is only modestly below consensus at $1.90, with GMV on the threshold of declining, eBay faces an increasing need to restructure the high margin marketplace to drive growth given ongoing slowdown in transactions. A further restructuring of seller fees to attract larger sellers, or a tech. upgrade to better compete with other platforms (AMZN) could drive marketplace margins lower than current estimates. They don’t expect positive 3Q results or 4Q guidance.

- Deutsche Bank notes that while the good news last week was that eBay reaffirmed 3Q guidance (revs of $2.1-$2.15bnn; EPS of $0.39-$0.41), they think the bad news this week may be that the underlying metrics for 3Q and 4Q guidance may be a bit disappointing (owing to a consumer spending slowdown, forex headwinds and structural challenges). Simply put, they think ests could move lower in coming quarters, especially as recent seller checks indicate declining GMV activity. Hence, the firm reiterates their SELL investment rating, and believes that recent value-buyer interest may be a bit premature.

Notablecalls: I suspect EBAY will trade closer to $16 level today. MLCO negative call just ahead of the earnings release is pretty gutsy and usually works.

EBAY's a short above $17.


FeirFactor said...

This is ridiculous. eBay has $3 a share of net cash and short term investments on its balance sheet. So you're getting the business for $13 here. You said estimates are for $1.90 this year? That's a 7 mulitiple on this years earnings for the leading company in its business with a significant moat, a fortress balance sheet, and a cash cow of a business. Total joke. Maybe it goes lower on a bad earnings report but there's too much value here for anything more than that.

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Huss said...

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