Morningstar

EBay Platform Improvements Are Encouraging

We're taking a more conservative approach to the 2017 outlook than the firm's, but we're not planning changes to our fair value estimate.

Securities In This Article
Amazon.com Inc
(AMZN)
eBay Inc
(EBAY)

Our thesis on

Fourth-quarter constant-currency GMV and revenue growth of 5% and 6%, respectively, are respectable in a disappointing holiday season for most consumer companies not named

The key question coming out of the quarter is the 2017 outlook calling for organic revenue growth of 6%-8% (implying $9.3 billion-$9.5 billion for the year), despite first-quarter guidance calling for 4%-6% revenue growth ($2.17 billion-$2.21 billion). We appreciate management's confidence in accelerating revenue as 2017 progresses, and these targets are possible when factoring in structured data listing pages, StubHub (despite tougher comparables), and classifieds, as well as opportunities like seller advertising on eBay and structured data for unbranded/private-label products. We think management deserves credit for making changes to keep its consumer-to-consumer marketplace relevant, and we are comfortable with our narrow moat rating. Still, we'll take a more conservative approach to our model assumptions, forecasting 2017 revenue at the low end of guidance with longer-term revenue growth in the midsingle digits, below management targets in the high single/low double digits.

We're not planning material changes to our $30 fair value estimate outside of time value of money adjustments. While there is much to like about eBay's improved marketplace and capital-allocation strategies, we see the stock as a show-me story, with Amazon continuing to find ways to bring small/midsize sellers onto its platform.

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About the Author

R.J. Hottovy

Sector Strategist
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R.J. Hottovy, CFA, is a consumer strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He is responsible for consumer discretionary and staples research. He has covered the consumer sector as an analyst and director of global consumer equity research for Morningstar since joining the company in 2008, and specializes in a broad range of consumer categories including restaurants, footwear and apparel retailers, consumer electronics retailers, fitness clubs, home improvement and furnishing retailers, and consumer product manufacturers.

Before joining Morningstar, Hottovy was a director and senior stock analyst for Next Generation Equity and an analyst for William Blair & Co., specializing in a wide range of retail and consumer product companies. He also spent two years at Deutsche Bank, covering waste management, water utilities, and equipment rental stocks.

Hottovy holds a bachelor’s degree in finance and a second degree in computer applications from the University of Notre Dame, where he graduated magna cum laude. He also holds the Chartered Financial Analyst® designation and is a member of the CFA Institute and the CFA Society of Chicago.

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