Citigroup: EBAY No Longer a Dog

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Citigroup analyst Mark Mahaney offers some clear thinking to back up his opinion that eBay will continue to move past its three-year turn as a stock-market dog.  Mahaney believes that EBAY goes higher if three conditions are met:

  1. US and German growth rates accelerate
  2. Non-commerce revenue continues to perform well
  3. Margins expand

Hard to dispute that.  In addition, Mahaney argues that all three conditions are likely:

First, Citigroup’s intra-quarter tracking suggests that US and German listings are accelerating, which Mahaney believes will translate into revenue acceleration.  Second, less persuasively, Mahaney notes that eBay management still seems optimistic about PayPal (if not Skype, which we continue to think the company should sell immediately).  Third, Mahaney believes eBay can expand margins by at least a couple of points if it cuts back on “discretionary spending.”  Mahaney seems confident that eBay will eventually cut back such spending, but notes it may take a while.  In sum, far from drum-banging conviction–but solid logic and at about 25x-30x 2008 EPS, a reasonably priced stock. 

Disclosure: I have a long-term holding in EBAY.

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