Shares of eBay (EBAY) are on the rise after Morgan Stanley analyst Brian Nowak upgraded eBay (EBAY) two notches to Overweight as he expects the company to start intermediating its own payments, pulling away from PayPal (PYPL), which could be a driver of more sustained gross merchandise volume growth.
MORGAN STANLEY SAYS BUY EBAY: In a research note this morning, Morgan Stanley’s Nowak upgraded eBay two notches, to Overweight from Underweight, and raised his price target on the shares to $58 from $36. The analyst told investors that he expects eBay to start intermediating its own payments, pulling away from PayPal, in 2018 as management stated on its fourth quarter conference call. Nowak is bullish about this initiative as he has seen other leading platforms, such as Amazon (AMZN) and Booking (BKNG), observe higher user conversion and spending from ore integrated payment offerings, which he now expects to be the case for eBay’s marketplace. A more integrated payments offering increases the conviction in eBay’s ability to grow buyers, spend-per-buyer and gross merchandise value, he added. Furthermore, Nowak sees a path for payments to add 20% to EBIT by 2021. Additionally, the analyst told investors that he is also bullish on eBay’s promoted listings ad business, as his analysis of Amazon/Etsy (ETSY) ad businesses speaks to how quickly e-commerce platforms can scale ad monetization. Amazon and Etsy’s ad businesses have grown by 80% and 50% CAGRs, respectively, over the last four years, he points out. Nowak believes eBay began to scale its promoted listings business in a meaningful way for the first time in 2017, and his base case assumes it grows at about 110% 2017-20 CAGR.
PRICE ACTION: In morning trading, shares of eBay have gained about 2% to $41.51.
