By Dan Gallagher
EBay Inc. is seeing its core online auction business show signs
of improvement after making numerous changes over the past two
years, in hopes of beefing up its performance, according to a pair
of brokerage reports Monday.
Shares of eBay (EBAY) closed down 17 cents, or 1%, at $16.17 on
Monday.
Online auctions still constitute a majority of eBay's total
revenue, though the maturing business has been in decline for the
last few quarters. EBay is banking heavily on stronger growth in
its PayPal business, but the company has also been investing in
changes to the auctions side, as the business has come under
greater competitive pressure from rivals such as Amazon.com
(AMZN).
The auctions business saw its worst period in the first quarter.
Revenue fell 18%, to $1.22 billion. Gross merchandise volume - or
the total value of goods listed over the marketplace - slid by 16%
during the quarter.
"Our channel checks show that the pace of GMV decline in
Marketplaces likely bottomed out in 1Q," Youssef Squali of
Jefferies & Co. wrote in a report Monday.
The analyst stopped short of calling a turnaround for the
business, but noted that with continued growth in the payments
business, "2010 estimates could prove too conservative."
In his own note to clients, Sandeep Aggarwal of Collins Stewart
said the changes made by the company to the auctions business "are
beginning to bear fruit." He notes improved search results and an
improved fee-calculation process.
"In our view, the changes are helping eBay in listing conversion
and GMV per listing going up," he wrote. "We also believe that
addressing and correcting the structural problems in the
Marketplaces business (e.g. legacy auction bias) is a key step
towards unlocking value in the stock."
Several analysts believe eBay to be under-valued. Though the
stock is up 17% for the year, eBay shares trade at only 11 times
estimated earnings for the next four quarters. Amazon, by contrast,
trades around 50 times estimated earnings.
Squali of Jefferies says used car sales may see improvement in
the second quarter. He also said sellers have reported improved
outreach efforts by eBay's management, and the company's stronger
emphasis on fixed-price listings has improved the experience for
users.
"We view the stock as undervalued on both relative and
sum-of-the-parts bases," wrote Squali, who rates the stock as a
buy, with a $23 price target.
-Dan Gallagher; 415-439-6400; AskNewswires@dowjones.com