"eBay hosted its analyst day yesterday, at which management provided details behind its financial goals for 2011. While filled with long-term optimism, we thought the analyst event lacked near-term reality with respect to the current deteriorating fundamentals. In light of no near-term (2009) guidance, anticipate acceleration in growth, competitive pressures and economic backdrop, we think it's difficultto put much credibility into the 3-year plan. We think investors should gauge eBay against near-term performance. We reiterate our SELL."
Analyst Day overview - PayPal will do heavy liftingEBay held an analyst day, introducing its new management team (70% of top executives are new or in new positions) and outlining its plans to turnaround its core while continuing to grow its PayPal and Skype businesses. Biggest positive: 2011 growth targets for PayPal ($4-5bn) and Skype ($1bn+), which even with flat Marketplace rev. would put total rev. at $11bn, well above Street at ~$9.0bn. Biggest negatives: No obvious fixes to marketplace share losses, and US net debt position limits ability to attract value investors with buybacks.
2011 outlook well above the StreetEBay expects to drive $10-12bn in '11 revenue vs street at $9.0bn (BAC-ML at $8.8bn) with $4-5bn from PayPal, $5-7bn from core, and $1bn+ from Skype. Implied operating income target is $2.3-3.9bn, above our $2.1bn estimate even at low end, and EPS at midpoint would be around $2.10, vs our $1.54.
Why we are lower than management's outlookGuidance is based on a return to a more normal economic environment in 2010, with marketplace maintaining share in '10 and growing share in '11. With Amazon, Craigslist and Google growing users, we expect marketplace to remain under pressure, which could have a spillover effect on PayPal and advertising.
Maintain Underperform - share headwinds in '09Upbeat presentation, but one message from the day was that eBay was still early in their turnaround and that things would get worse before they would get better. We believe that the Market is putting companies, and especially turnarounds like eBay, in a "show me" box and we think other stocks are more likely to react positively to signs of an economic turnaround.