EBay stock falls after PayPal suggests weak volume trends at former parent

Shares of eBay Inc. plunged and approached a two-year low Friday, after PayPal Holdings Inc.’s earnings report suggested a slowdown in merchandise-sales volumes at its former parent.

EBay’s stock
fell 9.2% in active afternoon trade, putting it on track for the lowest close since Dec. 6, 2016. Volume swelled to over 29.2 million shares, nearly triple the full-day average of 10.8 million shares.

Meanwhile, PayPal’s stock
shot up 8.5% after the digital-payments company, which was spun off from eBay in July 2015, reported late Thursday third-quarter earnings and revenue that were better than expected. In its earnings release, PayPal said eBay Marketplaces total payment volume (TPV) increased 3% on a currency-neutral basis, down from 6% growth in both the second and first quarters.

Friday’s selloff highlights the divergent path shares of eBay and PayPal have taken so far this year. EBay’s stock has dropped 24% year to date, while PayPal shares have run up 14%. In comparison, the Nasdaq Composite Index
has returned 7.9% year to date, and the S&P 500 Index
has tacked on 3.5%.

Don’t miss: PayPal sees encouraging growth from Venmo; stock surges.

PayPal CFO John Rainey, on a post-earning call to discuss its quarterly results with analysts, said that its fourth-quarter revenue guidance range of $4.195 billion to $4.275 billion, reflected “anticipated softness” in the eBay Marketplaces business, according to a transcript provided by FactSet. The FactSet consensus for revenue stands at $4.234 billion.

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Stifel Nicolaus analyst Scott Devitt downgraded eBay to a hold, reversing his upgrade to a buy that was put in just three months ago. Devitt cited expectations of “weak” gross merchandise volume (GMV) trends. He slashed his price target to $35, the lowest it has been since January 2017, from $43.

Devitt said PayPal’s suggestion of eBay’s GMV growth was well below his prior estimate of a 7.2% increase. He lowered his GMV growth estimate to 4.4%, and cut his fourth-quarter estimate to 4.5% from 7.6%.

FactSet, MarketWatch

EBay’s stock selloff, and PayPal’s rally, may seem like vindication for PayPal investors. EBay’s announcement earlier this year that it plans to take over payments-processing duties for its Marketplace offering from PayPal, with plans to eventually partner with European company Adyen, sent PayPal’s stock tumbling 8.1% on Feb. 1 and eBay shares soaring 14%.

Read more: EBay breaks up with PayPal again, stock soars as PayPal shares dive.

Also read: PayPal: Just how bad is the eBay breakup?

“We further expect eBay’s multi-year transition to the Adyen payments platform could be bumpy given the long history that buyers and sellers have working almost exclusively with PayPal on the eBay platform,” Devitt wrote in a note to clients Friday.

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He said over the long term, the transition could be a positive for eBay, as it will lower merchant costs and increase operating income, but he expects a “prolonged period of compressed valuation for eBay shares,” as a result of “deteriorating” GMV growth.

Analyst Doug Anmuth at JPMorgan Chase & Co. reiterated his neutral rating on eBay. He said the stock could remain weak until the company provides more clarity, with its own third-quarter results. The results are scheduled to be released Oct. 30, after the closing bell.

The FactSet GMV consensus for the third quarter is currently $23.23 billion, up about 7.1% from $21.7 billion a year ago.

View more information: https://www.marketwatch.com/story/ebay-stock-falls-after-paypal-suggests-weak-volume-trends-at-former-parent-2018-10-19

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