Morningstar

Revising Our Outlook Lower After Ebay's Update

We are reducing our $44 fair value estimate and see the stock as modestly undervalued but would prefer a wider margin of safety.

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eBay Inc
(EBAY)

We still believe mid- to high-single digit GMV growth is the most realistic assumption over the next five years, below our low- to midteens growth forecast for the global e-commerce industry. Our outlook factors in Amazon's aggressive pursuit of small and midsize business sellers and many national retailers reaping benefits from new omnichannel strategies. We don't doubt that the measures eBay is taking will make its marketplace more competitive--particularly in C2C, which is the basis of our narrow moat rating--but customer acquisition and retention efforts may weigh on margins. As such, we plan a modest reduction in our medium-term revenue growth and margin assumptions, reducing our $44 fair value estimate by a few dollars. While we view eBay shares as modestly undervalued and see its capital allocation efforts as attractive, we'd prefer a wider margin of safety at current levels.

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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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