eBay’s stock is up 15% this morning after a strong earnings report last night.
The stock’s price is over its five-year highs and just about every analyst is rolling out big upgrades to the stock.
Here’s Ben Schacter of Macquarie on the company:
We are upgrading EBAY to an Outperform based on solid across-the-board performance in 1Q and our expectations for continued upside. Going into the call, we believed that there were three key issues for the stock:
1) Marketplace growth
2) PayPal Merchant Services growth
3) PayPal’s offline potential
- Post 1Q results, we are more positive on the first two issues, the third remains a long-term driver, and now there is another positive driver, PayPal margin.
- Regarding the first issue, Marketplace growth, GMV reaccelerated on an FXneutral basis and sold items growth of 17% was its strongest growth since 2Q’10. We believe that solid product improvements, ramping mobile usage, and growth in key verticals such as fashion, tickets, and auto parts were key. Importantly, all bode well for future improvements in Marketplaces. On the second issue, PayPal Merchant Services, the company needed to show stabilisation given the dramatic deceleration over the past year. They did just that, as 1Q PayPal Merchant Services growth was 28% versus 29% in 4Q’11. While macro and currency factors play a large role in Merchant Services, we are comfortable that it can grow 25%+ in the near-term. As for the third issue, PayPal’s offline potential, no real change to our view today vs. yesterday, but we believe that PayPal’s offline longterm potential will continue to be a positive factor in the stock even if it does not impact the near-term (2012-2013) financial model. Finally, PayPal margins surprised to the upside and we think there could be more room to grow.
- The bottom line is that EBAY is executing. We believe that product improvements, solid business management, and strong tailwinds from mobile are driving upside to estimates. We expect that will continue throughout 2012 and beyond. While we acknowledge that we are late to the party, better to arrive late than never at all.
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