6 Analysts React To The PayPal-eBay Split

PayPal Holdings Inc PYPL and eBay Inc EBAY are headed in opposite directions after eBay announced it will switch to a new payments processor starting in 2020.

A number of Wall Street analysts weighed in on the two stocks following the report.

Voices From The Street

◘ Baird analyst Colin Sebastian said eBay’s strong U.S. Marketplace growth and StubHub performance offset weaker international performance. “eBay should begin to earn significant revenue and operating profit as the payment intermediary ($2 billion/25-percent margin targets), and as such, we view the change as a logical and strategically prudent decision,” Sebastian said of the PayPal announcement.

Sebastian said noise over the eBay announcement overshadowed a strong quarter for PayPal. “While eBay is making a strategic decision to gain more control over its marketplace payments, we assume PayPal will continue past 2020 to fund the majority of transactions." 

◘ William Blair analyst Robert Napoli said PayPal will be just fine without being eBay’s processor. “The 12-percent selloff after hours driven by investor concerns over adjustments to the eBay agreement in 2020 is unsurprising given strong price gains recently, but we believe the thesis remains intact and long-term investors will be well rewarded,” Napoli said. 

◘ Bank of America analyst Justin Post said eBay’s growth outlook is improving and it now has a payments earnings bump coming in 2020. “Our positive view is based on eBay's attractive valuation and potential for multiple expansion on improved Marketplace growth,” he said. 

◘ D.A. Davidson analyst Tom Forte said investors shouldn’t hesitate to buy eBay stock, even after Thursday’s big move higher. “While we believe there is no denying eBay has got its groove back and a series of shrewd moves by management has the company reinvigorated and well-positioned for future growth, the biggest news of the night was management’s decision to, in our view, do what was in the best interest of its platform (buyers and sellers) by forging a future path less dependent on its former subsidiary PayPal,” Forte said. 

◘ Stifel analyst John Davis said it’s hard to find anything wrong with PayPal’s fourth quarter, and forward guidance seems conservative. “While we are tempted to buy the dip given what at first glance looks a severe overreaction (estimated low to mid-single digit revenue/EPS impact in 2021), we are concerned that this could reignite the seemingly forgotten debate around PYPL's competitive positioning, especially relative to the card networks."

◘ Cantor Fitzgerald analyst Joseph Foresi said PayPal’s changing relationship with eBay is manageable. “We believe PayPal can grow at roughly double the market average, supporting its premium to the group."

Ratings And Price Targets

Despite the initial market reactions to the news, Wall Street remains mostly bullish on the outlook for both eBay and PayPal:

• Baird has an Outperform rating and $52 target for eBay.
• Baird has an Outperform rating and $88 target for PayPal.
• William Blair has an Outperform rating for PayPal.
• Bank of America has a Buy rating and $52 target for eBay.
• D.A. Davidson has a Buy rating and $55 target for eBay.
• Stifel has a Hold rating and $79 target for PayPal.
• Cantor Fitzgerald has an Overweight rating and $85 target for PayPal.

Related Links:

Analysts Remain Divided On AMD After Earnings Beat

Paypal's Long-Term Story Remains In Place Despite eBay Split, Says William Blair

Photo courtesy of PayPal.