Street Debates Whether Investors Should Buy eBay's Stock After Mixed Quarter

eBay Inc EBAY reported mixed third-quarter results Wednesday, while the e-commerce site's fourth-quarter revenue outlook gave a disappointing preview of the important holiday season. 

Q3 Positives, Negatives

The company reported a revenue and EPS beat, but underlying unit economics like gross merchandise value growth were disappointing, UBS analyst Eric Sheridan said in a Thursday note. 

Beyond the headline numbers, there were three positive takeaways, the analyst said:

• An encouraging update on payments, including $1.1 billion processed for more than 20,000 sellers.
• Positive momentum in ads and promoted listings.
• The company bought back $1 billion of its own stock.

Sheridan's three negative takeaways were:

• Commentary by eBay on strategic reviews was lacking in substance.
• GMV excluding StubHub fell 6.6% year-over-year versus expectations of a 4.4% decline.
• StubHub suffered from a softer concert and theater environment.

Buy The Dip

Investors should consider buying eBay after Wednesday's post-earnings sell-off for three reasons, Credit Suisse analyst Stephen Ju said in a Thursday note:

• The company's continued rollout of product listing ads will increase its marketplace take rate. Momentum in payments will contribute to free cash flow.
• Ongoing product developments through data gathering can increase conversion rates over the longer-term.

Related Link: UBS Downgrades eBay, Citing Full Valuation

Don't Buy The Dip

The mixed third-quarter report from eBay includes two key readouts that are keeping Wells Fargo analyst Brian Fitzgerald on the sidelines, he said in a Thursday note.

The margin expansion guidance to 30% non-GAAP op margin by 2022 could be seen as disappointing relative to Elliot Management's own estimates of 32% by 2021, the analyst said. 

The company didn't offer an update on its Classifieds strategic review, and no update is expected this year, he said. 

What Needs To Happen Next?

Performance was negatively impacted by a new internet sales tax headwind, while buyer frequency in the platform remains challenged, Wedbush analyst Ygal Arounian said in a Thursday note.

The company is likely to continue focusing its investment dollars across Payments and Ads, but perhaps at the expense of other important areas like Managed Delivery, the analyst said. 

Improved marketing is needed to generate better frequency at eBay, especially for new users who can evolve to become a long-term opportunity if management can retain them, he said. 

Elsewhere, a decision related to the StubHub business "looks to be imminent," and the sale of the unit seems to be an "easier process" today, KeyBanc Capital Markets analyst Edward Yruma said in a Wednesday note.

The classified business could take longer, and divesting the business could be a prudent move by eBay to unlock value, the analyst said. 

Shares of eBay were trading lower by 96% at $35.44 at the time of publication. 

Ratings, Price Targets

• UBS maintained at Neutral, price target lowered from $42 to $40.
• Credit Suisse maintained at Outperform, price target lowered from $48 to $47.
• Wells Fargo maintained at Market Perform, price target lowered from $45 to $43.
• Wedbush maintained at Neutral, price target lowered from $38 to $36.
• KeyBanc maintained at Overweight, unchanged $47 price target.

Related Link: 21 Stocks Moving In Thursday's Mid-Day Session