PayPal spinoff seen critical for eBay amid e-commerce weakness

[October 18, 2014]  By Abhirup Roy
 
 (Reuters) - A recovery in eBay Inc's <EBAY.O> core e-commerce business will take longer than expected and any gains for investors would have to come from the separation of its PayPal unit, analysts said, a day after the company trimmed its full-year revenue forecast.

The stock fell as much as 7.8 percent to $46.34 on Thursday, its lowest in two years.

At least 16 brokerages cut their price target on eBay's shares by as much as $7 to a low of $48.

"We believe the pending spin-off of PayPal will help to unlock shareholder value as investors are able to value each business," BMO Capital Markets analysts wrote in a note.

The brokerage cut its price target on the stock to $58 from $64 but reiterated its "outperform" rating.

The company is preparing to spin off its fast-growing PayPal payments unit in 2015, after calls for a split from activist shareholder Carl Icahn.

The business accounted for 41 percent of eBay's total revenue in 2013.
 

A split can free up PayPal to build partnerships with e-commerce rivals and seize market share from payment startups like Stripe, backed by several PayPal founders, and technology behemoths like Apple Inc <AAPL.O>, which unveiled its own mobile payments initiative last month.

The planned spin-off also highlights slowing growth in the company's marketplaces business, which allows buyers and sellers to come together through its website and mobile applications.

It grew less than what some analysts had forecast, with the weakness expected to continue in the near term.

"We think 'worse performance means better' as we've seen in other activist situations, as buybacks ... and possible asset divestitures could increasingly surface as a catalyst for shares," Deutsche Bank analysts wrote.

The brokerage cut its price target to $53 from $57 and maintained its "hold" rating on the stock.

EBay cut its full-year revenue outlook to $17.85-$17.95 billion from $18-$18.3 billion and forecast fourth-quarter revenue of less than $5 billion, falling short of the average analyst estimate of $5.2 billion.

"Despite our belief that management will invest in eBay Marketplace, we believe that it will be fundamentally difficult for Marketplace to rebound to near-eCommerce growth rates," Piper Jaffray analysts wrote.

The brokerage cut its price target on the stock to $57 from $62 and maintained its "neutral" rating.

RBC Capital cut its rating to "sector perform" from "outperform" and lowered its price targets on the stock to $55 from $62.

Up to Wednesday's close, eBay's shares had dropped more than 7 percent this year.

(Editing by Saumyadeb Chakrabarty)

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