Why eBay, Inc. Might Pull Back

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of eBay, Inc.  (NASDAQ: EBAY  ) had a sluggish morning after Evercore Partners downgraded the online auction giant from Overweight to Equal Weight.

So what: Along with the downgrade, analyst Ken Sena reiterated his price target of $58, representing about 12% worth of upside to yesterday's close. Although Sena believes that eBay's valuation remains reasonable, he sees near-term pressure on the stock due to sustained take-rate headwinds.

Now what: According to Evercore, eBay's risk/reward trade-off is pretty balanced at this point. "Our rating revision weighs eBay's large addressable markets and undemanding valuation against the potential for sustained take-rate pressure within Payments and a higher level of investment across segments," noted Evercore. "Moreover, while we do not see valuation risk at these levels, we do suspect the potential for further negative estimate revisions, including its 2015 guidance." With the eBay off about 10% from its 52-week highs and trading at a forward P/E of 15, however, those short-term concerns might be providing patient Fools with a high-quality long-term opportunity.

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  • Report this Comment On December 05, 2013, at 9:37 PM, ayaghsizian wrote:

    This is one company that seems pretty simple to understand and a stock that seems hard to understand. I recently bought more shares of EBAY because I disagree with the negative reputation that the marketplace has and I disagree with the analysts that overestimate the problems the company has.

    First of all, everyone likes Paypal. We're all willing to pay the 3% because it's so safe and simple. That's the reason why it's growing so well.

    Second, and more important for now, Ebay is sitting in the middle of a booming E-commerce industry. With loads of cash and equity, great margins, growing revenue and other businesses like Stubhub, what is not to like. This is a real business earning real money. Billions of book value and double digit growth. Why wouldn't someone want to own a company earning billions with plans to earn MORE billions in the next few years. Ebay, Alibaba, Amazon, Overstock, etc... they'll all do well in the future. But Ebay is making billions now and in the future.

    Maybe I don't understand the problems.

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