Wall Street Weighs In On eBay's Q2 Earnings

Investors punished eBay Inc EBAY after its second-quarter earnings report and forward looking guidance disappointed many investors. Here's a summary of how five of the Street's top analysts reacted to the print.

The Analysts

• Morgan Stanley's Brian Nowak maintains an Overweight rating on eBay with a price target lowered from $58 to $55.
• Canaccord Genuity Michael Graham maintains at Hold, price target lowered from $43 to $40.
• Jefferies' Brent Thill maintains at Hold, price target lowered from $46 to $41.
• Credit Suisse's Stephen Ju maintains at Outperform, unchanged $58 price target.
• Stifel's Scott Devitt maintains at Hold, price target lowered from $44 to $43.
• KeyBanc Capital Markets' Edward Yruma maintains at Overweight, unchanged $50 price target.

At time of publication, the stock was trading down 7.2 percent at $35.20

Morgan Stanley: Challenges Exist

eBay's earnings report and guidance makes it clear the e-commerce company is facing increasing execution risk and competition, Nowak said in a note. Specifically, the company faces challenges from the slower roll-out of new platform initiatives, ongoing competition and active buyer and traffic challenges.

Nevertheless, eBay does boast multiple encouraging catalysts ahead, including the ability to grow its payments business to $2.6 billion by 2021 and achieve a $750 million operating profit.

It's "critical" for eBay to immediately improve its buyer growth and spend per buyer as failure to do so would prevent the stock's ability to outperform, the analyst said.

Canaccord Genuity: 3 Key Points

EBay's quarter can be highlighted with three key points:

• Gross merchandise value came in as expected but Marketplace GMV saw a weaker than expected performance from events and is likely to persist;
• Multiple initiatives that are expected to "move the needle" are taking longer to implement; and
• Ongoing headwinds prompted a disappointing full year revenue guidance but tax changes should support earnings.

Bottom line, eBay's headwinds including a slower than expected ramp of new initiatives, is balanced with a shareholder-friendly capital return profile which warrants a neutral stance on the stock.

Jefferies: Disappointing Progress

The company showed it's making progress on key initiatives, but at the same time the pace remains disappointing, Thill said in a note. Meanwhile, total GMV has grown in four straight quarters, but U.S. growth decelerated for the second consecutive quarter. Operating margin continues to contract due to rising competition. All told, the bullish case for eBay's stock "has become harder" to justify.

Credit Suisse: Reasons To Stay Bullish

The bullish case for eBay's stock is based on expectations for growing free cash flow over the longer-term, Ju said in a note. These include ongoing roll-out of PLA to increase marketplace take rate and product development improvements, which should increase conversion rates.

Stifel: Stiff Competition

Beyond the earnings print, eBay will continue facing fierce competition which could limit the company's ability to exceed the Street's current expectations, Devitt said in a note. Nevertheless, investors should be encouraged by management's dedication towards spurring growth and returning capital to investors through share repurchases, which should be sufficient to support the stock.

KeyBanc: Time Is Needed

EBay's earnings report was "merely OK" but the bigger takeaway is ongoing initiatives to improve the consumer experience needs time to be implemented, Yruma said in a note. In addition, the stock's multiple looks "attractive" at 16.4 times 2018 estimated P/E and 11.5 times 2018 estimated EV/EBITDA. In fact, the stock is trading at a "meaningful discount" to similar marketplace and discount retailer peers.