Buy eBay and short Etsy, says Morgan Stanley in call on $1.1 trillion e-commerce market

By Steve Goldstein

Morgan Stanley says investors should buy eBay and short Etsy in a call on the $1.1 trillion U.S. e-commerce market.

Analysts led by Nathan Feather upgraded their view on eBay dramatically, hiking the rating to overweight from underweight and lifting the target price to $62 from $35. At the same time, Etsy was cut to underweight from equalweight with the target price cut to $55 from $64.

EBay shares (EBAY) ended Wednesday at $49.45 and have gained 13% this year, while Etsy (ETSY) closed at $67.49 and has dropped 17% this year.

EBay shares rallied 4% in premarket trade, while Etsy stock dropped 4%.

The analysts see the trade as a valuation-led move. EBay, they say, will benefit from greater emphasis on innovation and generative artificial intelligence to flip gross merchandise value growth from negative to positive while maintaining, or expanding, margins. But they are bearish on Etsy's medium-term growth trajectory, and say margins may be hit by marketing spend to to attract and retain incremental buyers.

EBay trades at a 35% discount to Etsy on 2025 EBITDA, say the analysts, though they see similar growth trajectories for both companies.

The analysts say Chewy (CHWY) is the best positioned name in the sector with a strong moat as it reiterated an overweight.

Another point they made is that impact from PDD's (PDD) Temu appears to be waning in the U.S., which could be a tailwind to volume growth through the year.

The same analysts assumed coverage of the online dating sector, downgrading Match Group (MTCH) to equal-weight from overweight and lowering its price target to $37 from $53, while also lowering Bumble's (BMBL) price target to $13 from $16. Both stocks have dropped by about 80% since mid 2021.

"We believe that soft user growth is more attributable to a lack of innovation than saturation as 70% of US singles actively looking for a relationship do not currently use online dating," they say. While the companies have a wide slate of improvements planned for 2024, visibility into the potential success is "low" and it will likely take time to sustainably reaccelerate growth.

-Steve Goldstein

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04-18-24 0705ET

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