eBay (EBAY) shares are lower Tuesday after financial services firm Jefferies downgraded the e-commerce stock to Underperform (equivalent to a Sell) from Hold and lowered its price target to $52 from $60, which is more than 17% below where EBAY is currently trading.
The consumer discretionary stock has been on a roll in 2024, up 44% for the year to date, but Jefferies analyst John Colantuoni is concerned about decelerating advertising growth and increased marketing investments.
He notes that advertising growth slowed to 18% in the first quarter of 2024 from 23% in the fourth quarter of 2023, before falling to just 4% in the second quarter of 2024. In Q3 of this year, eBay's ad growth was just 7%.
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"We expect slowing advertising growth to eliminate a key source of margin and reinvestment capabilities, resulting in downside to both gross merchandise value and EBITDA [earnings before interest, taxes, depreciation and amortization]," Colantuoni says.
The analyst adds that a recent slowdown in China, which represents about 10% of eBay's revenue, "eliminates a key tailwind to growth."
EBAY is a Hold for most of Wall Street
The majority of Wall Street remains on the sidelines when it comes to the large-cap stock. According to S&P Global Market Intelligence, the average analyst target price for EBAY is $61.94, representing a discount to current levels. Meanwhile, the consensus recommendation is Hold.
Financial services firm Wedbush is one of those with a Neutral rating (equivalent to a Hold) and a $70 price target on EBAY stock.
"Our model implies mid-single digit earnings-per-share growth over the next five years supported by margin gains and share buybacks as the company remains committed to returning capital to shareholders," says Wedbush analyst Scott Devitt. "While we hold a favorable view of the company’s long-term strategy, free cahs flow dynamics, and capital allocation approach, we see few near-term catalysts to drive upside to estimates or a material inflection in growth."
Argus rates EBAY a Buy
Not everyone is so skeptical of EBAY. Financial services firm Argus Research, for one, has a Buy rating on the retail stock and a $70 price target.
"Following the 2015 PayPal spinoff, and the sale of StubHub, the Classifieds business, and other assets, eBay has become a focused e-commerce retailer," wrote Argus analyst Joseph Bonner in a November 11 note. "CEO Jamie Iannone is working to strengthen the eBay Marketplace platform through a continuous blizzard of new features and enhancements centered on improving the user/seller experience, including new seller tools underpinned by generative AI models."
Bonner added that eBay is looking to "build new revenue streams in payments, advertising, cross-border shipping, and even live-event shopping."
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