Tuesday, September 15, 2009

eBay (NASDAQ:EBAY): Upgraded at Piper Jaffray and UBS

eBay (NASDAQ:EBAY) is getting two upgrades this morning:

- Piper Jaffray is raising EBAY to Overweight from Underweight while raising their target to $30 (prev. $19).

According to Piper the upgrade is based on their quarterly eCommerce survey which suggests recent changes made to the eBay marketplace could have a longer term impact on stabilizing the business. Also, web traffic data suggests slight upside to the September quarter.

Firm's proprietary quarterly eCommerce survey of 300 online shoppers shows 79% were 'satisfied' or 'very satisfied' with eBay, up from 70% the previous two surveys.

Web Traffic Improving. Data from compete.com shows unique users to eBay's U.S. site increased 12% y/y in August, up from ~5% y/y the prior 3 months. Piper is modeling for marketplace revenue to be down 8% y/y in Sept. Given GMV is the critical part of the equation, unique users are only a directional indicator toeBay's marketplace revenue.

Despite recent upgrades, Street is still largely neutral on shares.

Piper Jaffray Quarterly eCommerce Survey Shows Improved Satisfaction. Their proprietary quarterly eCommerce survey of 300 online shoppers shows 79% were 'satisfied' or 'very satisfied' with eBay, up from 70% in our June 2009 and March 2009 surveys, and 73% in our September 2008 survey. Firm believes customer satisfaction is a leading indicator of future sales because it leads to repeat sales, lower marketing spend, and better margins.

Web Traffic Improving, Suggest 1% Revenue Upside To September. Unique users to eBay's U.S. site are showing consistent signs of improvement suggesting upside to marketplace in the September quarter. Unique users in August increased 12% y/y in August, up from 8% y/y in May, 4% y/y in June and 3% y/y in July, according to compete.com.

Price Target. New price target of $30 (from $19) is based on a sum-of-the-parts valuation using 10x EBITDA for the marketplace business, 12x EBITDA for the Payments business, and a $2.75 billion valuation for Skype, in line with what eBay has an agreement to sell Skype for. We increase our target multiples from 6x previously, which the firm believes is fair for a high cash-flow generating business that is stable rather than in decline.

- UBS is upgrading EBAY to Buy from Neutral with a $28 price target (prev. $24).

Recent data from top eBay vendor ChannelAdvisor and other channel checks suggest eBay same store sales may be starting to turn a corner, coming in at +4.6% Y/Y in Aug vs -10% in Q1 and -5% in Q2. Upcoming changes including DSR updates, search enhancements, better dispute resolution tools, and improvements/expansion of Multi-Variable Listings should continue to drive transaction growth and accelerate Marketplace GMV. In addition, a renewed focus on the secondary market poses a positive long-term opportunity for the company.

Skype Sale Removes Overhang
While the P2P licensing dispute with Joltid is still a variable (eBay retained a 35% stake), UBS surmises that the buyers are familiar with both the technology in question and the Skype/Joost/Joltid founders given prior relationships, mitigating risk. Total consideration values Skype at $2.8B (14x ‘10E EBITDA) and the transaction allows eBay to continue investing in (and focusing on) its core ecommerce businesses.

Potential tough comps from cashback in Q4
eBay has benefited from Microsoft's Cashback Program to promote its search / Bing (one of the initial participants last year), so eBay could face tougher comps in Q4, especially as the program has expanded to 920+ vendors. Impacts could vary based on Microsoft’s pullback from, or investment into its Cashback Program.

Notablecalls: So, visitor trends are up and satisfaction is up. Skype overhang was removed 2 weeks ago. The stock is up ~ 10% since the announcement. I know some smart operators that bought EBAY on the day of the announcement and I suspect they will be using the upswing to sell at least some of their holdings.

I think eBay may have 1-2 pts of upside in it over the next couple of weeks (if the market holds).

Don't know what to do with the stock this morning. Maybe the open will offer a nice entry oppy.

PS: Yahoo (NASDAQ:YHOO) got an upgrade from Sanford Bernstein last night after market close. Outperform and $21 target.

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