We're taking a more conservative approach to the 2017 outlook than the firm's, but we're not planning changes to our fair value estimate.
By R.J. Hottovy, CFA | 01-26-17 | 08:17 AM | Email Article

Our thesis on  eBay  is unchanged entering 2017, with recent changes like structured data and mobile-platform improvements making it more competitive than it was a few years ago, but with lingering questions as to the appropriate long-term growth rate to value the company.

R.J. Hottovy, CFA, is a consumer strategist for Morningstar.

Fourth-quarter constant-currency GMV and revenue growth of 5% and 6%, respectively, are respectable in a disappointing holiday season for most consumer companies not named  Amazon . Still, active buyers increased just 3% to 167 million (despite a TV brand-awareness campaign) and GMV per active buyer fell 1% to $136, suggesting room for improvement on the customer acquisition and engagement fronts.

The key question coming out of the quarter is the 2017 outlook calling for organic revenue growth of 6%-8% (implying $9.3 billion-$9.5 billion for the year), despite first-quarter guidance calling for 4%-6% revenue growth ($2.17 billion-$2.21 billion). We appreciate management's confidence in accelerating revenue as 2017 progresses, and these targets are possible when factoring in structured data listing pages, StubHub (despite tougher comparables), and classifieds, as well as opportunities like seller advertising on eBay and structured data for unbranded/private-label products. We think management deserves credit for making changes to keep its consumer-to-consumer marketplace relevant, and we are comfortable with our narrow moat rating. Still, we'll take a more conservative approach to our model assumptions, forecasting 2017 revenue at the low end of guidance with longer-term revenue growth in the midsingle digits, below management targets in the high single/low double digits.

We're not planning material changes to our $30 fair value estimate outside of time value of money adjustments. While there is much to like about eBay's improved marketplace and capital-allocation strategies, we see the stock as a show-me story, with Amazon continuing to find ways to bring small/midsize sellers onto its platform.

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R.J. Hottovy, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.
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