Competitive Headwinds Raise Questions for eBay
EBay's focus on improving its brand positioning and user experience is encouraging, but structural headwinds remain.
With our emphasis on economic moats, we're encouraged by
We still view eBay's structured data approach as a worthwhile endeavor that improves the buyer experience/conversion rates, search engine optimization, and dynamic pricing; these should keep marketplace GMV and revenue growth in the low single digits for the foreseeable future. For comparison, constant-currency marketplace GMV grew 4% in the quarter, a slight deceleration versus 5% growth in the prior quarter, while marketplace revenue grew 5%, a slight acceleration versus earlier quarters due to the reduced promotional activity. However, this still implies a sizeable gap to current industry trends. Certainly, StubHub and Classifieds, where constant-currency revenue increased 32% and 14%, respectively, should help to fill this gap and give us greater comfort with our narrow moat. That said, these platforms will take time to grow into material cash flow contributors (relative to the marketplace) and could face increased competition.
We're not planning to change our $28 fair value estimate, outside of adjustments for the sale of its stake in MercadoLibre (expected to yield gross proceeds of $1.2 billion). eBay's updated 2016 guidance--revenue of $8.95 billion-$9.0 billion, adjusted operating margins at the low end of 31%-33%, and adjusted EPS of $1.85-$1.90--appears feasible, especially after factoring in reduced contra-revenue factors and increased brand marketing spend.
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