EBay Inc (EBAY) may be one of the world’s top e-commerce sites, but Wall Street doesn’t seem to care. After all, eBay stock is off again today, down about 4% to near $24. For the year so far, the return is -12%.
The latest negative news came from Morgan Stanley analyst Brian Nowak. In a research note, he lowered the price target on eBay stock from $24 to $22.50 — although, he thinks that it could potentially fetch an awful $16.
Why the sourness?
First of all, Nowak is worried about trailing demand in international markets. And yes, this should not be any surprise. For the most part, the global economy has been sluggish — and there are few signs of any immediate comeback.
Hey, even fast-growing Netflix, Inc. (NFLX) is feeling the pressure, as seen with yesterday’s earnings release.
Consider that the International Monetary Fund recently lowered its global growth forecast for this year by 0.2% to 3.2%. Some of the factors include the deceleration in China, struggling commodities prices and the impact of plunging oil prices on emerging markets.
Other Dangers for EBAY
Yet Nowak’s analysis of eBay stock is more than just about macro issues. He is also getting uneasy about the competitive impact from the gorilla of ecommerce, Amazon.com, Inc. (AMZN).
The fact is that AMZN has the advantages of a massive logistics infrastructure, mobile devices and the Prime service, which allows for affordable shipping as well as other goodies like streaming videos. Such things are simply too expensive for eBay to offer.
But of course, Nowak is not the only bear. There is also Barclays’ Paul Vogel, who reduced his price target from $28 to $25. His main concern is that eBay will continue to have problems ginning up traffic from Alphabet Inc‘s (GOOG, GOOGL) search engine as the algorithms continue to change (an analyst from Cantor Fitzgerald also downgraded eBay for this reason).
Interestingly enough, Vogel compares eBay to Viacom, Inc. (VIAB)! That is, both are cheap stocks but there are few catalysts to get growth back on track. It’s a classic case of the dreaded “dead money” predicament.
What This Means for eBay Stock
While it’s true that Wall Street analysts can certainly get things wrong, it is still worth noting when a group of them suddenly go negative. Besides, the financials for eBay are far from inspiring, as seen with the latest earnings report. Revenues came in flat at $2.32 billion — despite that being the holiday quarter — and operating income fell by 12% to $600 million. Even with aggressive share buybacks, the earnings per share fell by 10% to 50 cents a share.
The guidance was also weak. For the current quarter, revenue growth is expected to come in at 3% to 5%.
If anything, the biggest indication of the difficulties of eBay is the spin-off of PayPal Holdings Inc (PYPL). The move was essentially to unlock the value of this division, which was likely being weighed down by its plodding parent.
Actually, as I’ve noted before at InvestorPlace.com, PYPL remains an interesting growth opportunity since the company is positioned nicely for the mobile payments revolution.
eBay, on the other hand, is still trying to find a way to jump-start growth and the strategy, unfortunately, is mostly vague.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
