EBay shares sink as strong dollar, competition hit forecast

Reuters News
Posted: Jan 28, 2016 7:50 AM

By Tenzin Pema

(Reuters) - EBay Inc stock plunged 14 percent in premarket trading after a disappointing showing in the holiday quarter and a weak forecast suggested that overwhelming competition from Amazon.com Inc was gutting the one-time Wall Street favorite.

EBay, which gets more than half its revenue from overseas, is also fighting headwinds from a strong dollar, which has already knocked the wind out of many companies' profits this earnings season.

Shares of the online retailer fell to $22.80 in pre-market trading on Thursday.

To make products easier to find on its website, eBay has made it mandatory for sellers to provide detailed information about the goods they offer, allowing the company to better catalog and market these products.

But that's not enough, Piper Jaffray analyst Gene Munster said.

"To return to industry growth rates, we believe eBay has to go beyond restructuring a product that is lower value than its core competition ..." Munster said in a broker note.

He cut his price target on the stock to $25 from $30.

Amazon aside, eBay is also facing growing competition from brick-and-mortar rivals like Wal-Mart Stores Inc that are aggressively boosting their online presence.

EBay has to be more like Amazon and other online retailers who have a curated selection of products, simplified purchase experiences and better delivery services, Munster said.

At least 12 other brokerages cut their price targets. Cowen and Jefferies were the most bearish - they lowered their targets to $25, compared with a median price target of $29.

Of 40 analysts covering the stock, 14 have a "buy" or higher rating, 25 have a "hold," and only one has a "sell."

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The company trades at 13.5 times forward earnings, versus Alphabet, which trades at 24.7.

Facebook Inc, which on Thursday posted a 52 percent jump in quarterly revenue, trades at 32.6.

"We are not recommending eBay as despite attractive value, we think growth of 2-5 percent is just not appealing enough where competitors such as Google and FB are making investments in product ads, customer match, and local targeting for the sake of higher seller conversion," Evercore ISI analyst Ken Sena said.

(Reporting by Tenzin Pema in Bengaluru; Additional reporting by Eileen Soreng; Editing by Sayantani Ghosh)