EBay Inc (EBAY) stock is still relatively new to the markets in one sense: Before last summer, owning eBay shares also gave you an ownership stake in Paypal Holdings Inc (PYPL), the digital payment service that now operates and trades independently of its former parent company.
EBAY stock, in its new standalone form, isn’t doing so hot this year. It’s down more than 11% in 2016, despite a 1% advance in the wider market.
That’s of little concern to Wall Street research firm Bernstein however, which issued a note today on EBAY stock, giving it a target price of $32 per share, representing 33% upside to its closing price around $24 per share on Friday.
The reason behind the bullish outlook, however, is far more interesting than the outlook itself.
The main way eBay acquires new users and traffic is through search engine optimization, and specifically, traffic from Alphabet Inc‘s (GOOG, GOOGL) Google search engine. eBay was famously hit by a change to Google’s algorithm in 2014, and this, combined with a security breach that required users to change their passwords, slammed user growth and gross merchandise volume growth.
While Bernstein’s Carlos Kirjner doesn’t believe EBAY stock is still facing issues related to the password change, he notes eBay still hasn’t fully recovered from Google’s change.
A New Hope for EBAY Stock
eBay is working on it though, and, according to Kirjner, the company is currently changing “how its marketplace is organized and operates, with potentially important implications on how links to its site are ranked by Google’s organic search.”
The Bernstein analyst goes on to explain that his team has built a “proprietary data set” they’ve developed over several months to see if eBay’s efforts are actually changing the way eBay pages are ranked by Google. Kirjner explains that it’s the first time someone has tried to “evaluate whether the structured data effort is having a positive impact on eBay’s organic search rankings, and the data suggest we could soon see a positive inflection in user and GMV growth.”
This is a huge claim, and has potentially huge implications for the future of the EBAY stock price. Consider a few tidbits from Bernstein’s note on Monday regarding eBay’s current efforts:
- “We are confident that what eBay is attempting to achieve now is fundamentally different from past attempts and, if successful, could improve user experience materially.”
- ” Our proprietary dataset unambiguously shows an improvement in eBay’s organic search rankings, although not across all important pages.”
If Bernstein is indeed correct and these efforts eventually continue to pave the way for eBay to get more love from Google, it could result in a positive change in GMV trajectory, which Kirjner concedes “could move the stock significantly.”
Finally, Kirjner sees another net positive for EBAY stock, and this one entirely unrelated to its data initiative:
“Given that eBay’s United States business is a net exporter, currency headwinds in 2015 had a secondary effect in the sense that countries like e.g. Russia had less purchasing power for US goods. Given the slight reversion of the USD in 2016, we expect there may be a tailwind on domestic GMV.”
In other words, the dollar has gotten slightly weaker this year, and that should be good for eBay’s results. Yes, $32 is still a long ways off, but by no means is it impossible.
Sure, eBay is just one of many companies that are too reliant on Google for business, but that’s just a fact of life for now. Improving eBay’s search standing is a major focus for the company, and if those efforts pay off, $32 isn’t at all unreasonable.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
