It’s only been a little over a month since spinning off PayPal (PYPL), yet eBay (EBAY) stock’s post-PYPL trading life is getting off to a rough start.
Shares of the online auction site are down more than 10% since spinning off its digital payments platform in mid-July, and many investors believe that PYPL is a far more compelling buy.
But now, EBAY stock is looking like a bargain buy in its own right, especially as it puts several large problems behind it.
Onward and Upward!
Carlos Kirjner of Bernstein Research noted in a report Wednesday morning that there are two fundamental issues plaguing eBay’s stock, and that both can be overcome more easily than the market believes.
The first issue is a decline in organic traffic from Google (GOOG, GOOGL). In May 2014, Google changed the way it ranked websites in its search results, and the algorithmic tweaks were not kind to eBay’s ephemeral pages, which live online for a week or so until an auction ends.
Kirjner believes the concerns are overblown, slapping EBAY stock with an “outperform” rating and a $34 price target — a solid 35% above yesterday’s closing price. On Google:
“We have had a handful of discussions with third-party SEO experts on eBay’s ability to re-optimize its site to recover some or all of the rankings it lost in Google search. Our current view is that it is plausible, perhaps even likely, that eBay could succeed…”
While eBay’s crippling reliance on Google isn’t ideal, that’s been the reality of its business model for some time now, and a recovery in search would be an undeniable plus for the stock.
The second major issue going forward is its recovery from a password reset eBay instituted after a massive security breach last year. Kirjner thinks the recovery from this infraction will certainly be bullish for EBAY stock:
“We think time will ‘fix’ the password reset issue. With more than a year after the event, users who have not changed their passwords are now out of the active user pool and should be treated as new users.”
In other words, the active user base has seen all the negative effects from the password change that it will see, and EBAY shareholders should expect to see higher user growth going forward.
Kirjner also thinks that fears surrounding Amazon‘s (AMZN) e-commerce growth — specifically, its impact on eBay’s business — are overblown.
With EBAY stock trading at just 13 times earnings, you can easily make the argument that eBay is among the more compelling value plays in today’s market. It’s not the sexiest investment, but hey, I’ll take 35% gains where I can get ’em.
As of this writing, John Divine owned shares of PYPL stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
