'No Easy Fixes' For A Lagging eBay, BofA Says In Downgrade

The bullish case for eBay Inc EBAY can no longer be justified amid the company's underperformance versus the broader e-commerce industry, according to Bank of America Merrill Lynch. 

The Analyst

BofA's Justin Post downgraded eBay from Buy to Neutral with a price target lowered from $44 to $33.

The Thesis

One driver of the downgrade comes from its former subsidiary and payment processor Paypal Holdings Inc PYPL, Post said in the Monday note. (See his track record here.) 

PayPal said in its third-quarter earnings report that gross merchandise volume associated with eBay transactions grew just 3 percent in the quarter, marking a deceleration from 6 percent in the prior quarter, the analyst said. PayPal also highlighted "anticipated softness" in the eBay Marketplaces business at a time when e-commerce rivals are seeing growing volumes, he said. 

It's clear that eBay's Q3 report will contain negative news, and the company could take the opportunity to explain new strategic changes to support the stock, Post said. Nevertheless, it's apparent there are "no easy fixes" at eBay's disposal, he said. 

While eBay's stock looks cheap at just 11 times 2019 estimated non-GAAP EPS, it stands at the lower half of its historical range, and this may be justified until the auction site can show a stabilization in GMV growth or "articulate a way to unlock value," according to BofA. 

Price Action

Shares of eBay were trading down more than 1 percent to $28.46 at the time of publication Monday. 

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