EBay Stock Worth a Bid
Despite the recent run of negative news, our wide moat rating and positive long-term thesis for eBay remain in place.
Market Update
Shares of eBay (EBAY) have come under pressure recently, which we attribute to a number of factors including the May 21 data breach statement, changes to Google's (GOOGL) Panda 4.0 search algorithm that had a negative impact on the search ranking of many of eBay's webpages, the launch of Amazon Payments, and the June 9 announcement that PayPal president David Marcus is stepping down to lead Facebook's (FB) messaging products.
Based on ChannelAdvisor data, we acknowledge that the data breach and Google search changes likely pressured gross merchandise volume during the latter part of May. We plan to adjust our second-quarter and full-year 2014 revenue estimates, with both now likely in the lower half of management's guidance ranges ($4.325 million-$4.425 million for the quarter, and $18.0 billion-$18.5 billion for the year). These changes will not be significant enough to affect our fair value estimate, and we believe eBay can adapt to the algorithm changes through new product ad listing purchasing strategies.
In our view, Amazon Payments may be a viable payment option for some of Amazon's smaller third-party sellers, but won't offer much disruption to PayPal due to funding-source limitations and lingering merchant fears about sharing data with Amazon (AMZN).
Marcus' departure is surprising, as he had helped shape PayPal into a mobile commerce leader and pioneered technologies such as PayPal Beacon and PayPal Here. However, we've long thought PayPal had one of the deeper and more entrepreneurial benches in e-commerce (partly the result of recent acquisitions), and believe there are several qualified candidates to lead PayPal. We're encouraged that PayPal remains on track to meet its 2015 goals (including $9.5 billion-$10.5 billion in segment revenue), which is consistent with our model.
Despite the recent run of negative news, our wide moat rating and positive long-term thesis remain in place, and we believe the current valuation underappreciates eBay's portfolio of technologies.
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