PayPal Sneezes, eBay Catches A Cold: RBC Downgrades Online Auction Platform On Negative Data

Paypal Holdings Inc PYPL reported third-quarter results Oct. 18, and the readthrough isn't looking all that positive for its erstwhile parent eBay Inc EBAY, according to RBC Capital Markets.

The Analyst

Analyst Mark Mahaney downgraded eBay from Outperform to Sector Perform and reduced the price target from $47 to $34.

The Thesis

PayPal revealed a slowdown in its eBay Marketplaces total payment volume, excluding forex, from 5.7 percent year-over-year in Q2 to 3.4 percent in Q3, Mahaney said in the Monday downgrade note. (See his track record here.) 

PayPal management also mentioned anticipated softness in the eBay Marketplace business in Q4, the analyst said. 

The transition to intermediate payments through the Adyen partnership will be slower than planned, with sellers indicating a 40-60-percent drop in sales since the transition, in RBC's view. 

With significant risk now seen in RBC's assumption that marketplace improvements will lead to significant acceleration in eBay's gross merchandise volume, the sell-side firm said it is reducing its estimates for the company.

RBC lowered its Q4 and 2019 FY19 revenue, pro forma operating income and EPS estimates by 1 percent. The firm now anticipates 2019 revenue of $11.6 billion, pro forma operating income of $3.19 billion and GAAP EPS of $2.03.

Rolling forward its estimates to 2020, the firm also reduced its price target for eBay. 

"At the margin we are also concerned about rising Amazon.com, Inc. AMZN risk — our survey results and the company's aggressive infrastructure investments almost certainly suggest that the long-standing Amazon competitive risk is becoming more material," Mahaney said. 

The Price Action

Shares of eBay were down 2.16 percent at $27.88 at the time of publication Tuesday. 

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