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Core Marketplaces Should Drive eBay's Q1 Report

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eBay Inc EBAY 1.82% is set to report its 1Q16 results after market close on April 26. Goldman Sachs’ Heath P. Terry maintained a Buy rating for eBay, with a price target of $30, saying that the company is likely to report its 1Q results broadly in-line with expectations, driven by core marketplaces.

Analyst Heath P. Terry projected revenue of $2.07bn, up 0.4 percent y/y, within the guidance range of $2.05-$2.10bn. Adjusted operating income is estimated at $687mn, ahead of the consensus expectation of $679mn. The figure implies margins of 33.2 percent.

Same-Store Sales

eBay generated SSS growth of 4 percent y/y via the ChannelAdvisor platform in 1Q16, representing an acceleration from 3.1 percent y/y growth in 4Q15. “The acceleration in SSS growth was driven by continued strength in autos, flat growth in auctions, and slower declines in fixed price as eBay starts to benefit from easing comps,” Terry wrote.

Investments

On the product front, eBay is focusing on structured data initiative and is likely to launch a “re-platforming of the browsing and purchase experience this summer.” On the marketing front, the company is likely to make investments in increasing brand present via social, digital, and TV ad campaigns.

Terry expects these efforts to reaccelerate traffic growth and conversion rates through the rest of 2016.

More Focused Strategy

eBay has a more focused strategy after the separation of Paypal Holdings Inc PYPL 0.58% and divestment of its enterprise business. The company is making renewed investments in technology and marketing to support the core businesses.

eBay already has a $2bn share buyback authorization, which is fueled by its FCF generation of $2bn+ each year. Given all these positives, the risk/reward ratio continues to be favorable, the analyst commented.

DateFirmActionFromTo
Apr 2016Morgan StanleyDowngradesEqual-weightUnderweight
Apr 2016Credit SuisseMaintainsNeutral
Apr 2016CitigroupMaintainsBuy

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