Technology

Why Analysts Now See eBay and PayPal in Such Different Situations

Jon C. Ogg

Published: October 24, 2016 8:05 am

Last Updated: January 13, 2020 2:01 am

Earnings season is more or less in full speed release mode. Over a third of the Dow stocks have released earnings now, and many more companies have issued earnings reports for their third quarter. The week of October 21 brought earnings reports from the likes of PayPal Holdings Inc. (NASDAQ: PYPL) and eBay Inc. (NASDAQ: EBAY).

It turns out that there were different trading reactions to the two companies, which had been adjoined for roughly a decade. It also turns out that the pool of analysts tracking each company has come out with very differing views over the trends of ratings and price targets on each.

For many investors, PayPal is considered to be the payment platform with potentially endless opportunities ahead. At least if it can overcome and outpace competition that is. eBay is considered to be the single best auction platform of them all, but its growth is projected to be harder to find, and it may have a hard time adding the endless millions of users buying and selling items on its auction and “Buy It Now” platform.

24/7 Wall St. tracked numerous analyst calls covering PayPal and eBay after their earnings last week.

PayPal was indicated up 1% at $39.90 last Tuesday. It had a 52-week range of $30.52 to $41.75 at that time, with a consensus analyst price target of $44.60 then. PayPal closed out the week with a 10% gain on Friday at $44.15, above the old 52-week high, and it now has a 52-week high of $44.95.

PayPal’s consensus analyst price target from Thomson Reuters was last seen at $46.00, and that is almost $2 higher than a month ago. Its analyst calls were as follows:

• Evercore ISI started it with a Buy rating and with a $46 price target.
• Cowen had a Market Perform rating but raised its price target to $40 from $39.
• Oppenheimer reiterated its Outperform rating and raised its target to $45 from $43.
• Piper Jaffray had an Underweight rating, but it raised its price target to $36 from $34.
• RBC Capital Markets reiterated an Outperform rating and raised its target to $47 from $46.
• Barclays has an Overweight rating, but it stood out with a price target cut to $46 from $47.

More price target changes were also seen for PayPal. Bernstein raised its price target to $43 from $41, and Goldman Sachs raised its target price to $49 from $47. Mizuho raised its price target to $48 from $46. SunTrust Robinson raised PayPal’s price target to $47 from $45.

Wedbush Securities reiterated its Outperform rating and raised its price target to a much higher $54 (versus a $50 prior target). As this was the most bullish target tracked by 24/7 Wall St., we wanted to take a closer look at the most optimistic view. Wedbush’s Gil Luria said:

We believe that PayPal will not only remain the commerce payments leader but enhance its position as the shift to consumer choice provides volume and revenue growth upside… We believe this high level of visibility should assuage remaining concerns about the attractiveness of PayPal’s investment model… Our target represents a 30 times multiple on 2017 EPS, a 20% premium to Visa justified by faster and accelerating growth and better visibility.

On eBay, the price targets were lowered and raised by competing firms. Its consensus analyst price target is now $32.78, versus $31.31 a month ago and $31.09 two months ago. Some of the analyst calls seen were as follows:

• Goldman Sachs reiterated its Buy rating and raised its price target to $35 from $34.
• JPMorgan maintained its Neutral rating and lowered its price target to $33 from $34.
• Piper Jaffray maintained a Neutral rating and raised its price target to $28 from $25.
• RBC Capital Markets kept its Sector Perform rating and raised its target price to $32 from $31.
• Susquehanna kept a Positive rating and raised its target price to $38 from $34.
• Wedbush Securities assumed eBay with a Neutral rating on October 13. Its target price was $34, but the firm cut that to $33 after this week’s view.
• Cowen lowered its target price to $29 from $30.

UBS reiterated its Buy rating on eBay and raised its target price to $36 from $34. As this was one of the top calls we have seen for a target price, the positives seen from Eric Sheridan were higher estimates, continued second-half improvements, structured data, an improved arc in eBay’s core Marketplaces business, StubHub and Classifieds value realization, and using its balance sheet to drive shareholder returns. He said:

We believe eBay has the potential to demonstrate revenue upside versus investor expectations from its structured data initiatives and large addressable market opportunity. Further, when combining a reasonable valuation with potential for shareholder returns, we believe eBay represents an attractive value proposition. However, we note a limited expectation for margin expansion continued investment in both marketing and platform improvements (e.g., structured data, mobile, site, user experience).

eBay closed out the week with a mere four cent gain to $29.06 on Friday. Its 52-week range is $21.52 to $33.19. eBay should still be considered an internet leader, with a $32.8 billion market cap.