eBay Inc (NASDAQ:EBAY, ETR:EBA) shares shed more than 3% after the online marketplace was downgraded to ‘Underperform’ by Jefferies analysts.
They also reduced their price target on the stock to $52 from $60, representing $32 per share for the marketplace, $15 for advertising and $5 for outside investments.
eBay stock traded down 3.2% at $63 in the early afternoon on Tuesday.
Analysts see decelerating revenue and increased marketing investments resulting in sluggish profit growth and downside to consensus estimates.
“We downgrade to ‘Underperform’ as eBay’s peer average multiple appears unsustainable given our outlook for below average EBITDA growth,” analysts wrote in a note to clients.
Underlying EBITDA is estimated to have declined by about 50% or 12% annually since fiscal 2019 through fiscal 2024 driven by an approximately 7% decline in revenue and 1,650 basis point decline in margin from a 30% increase in marketing and 60% increase in product.
A slowdown in advertising means reported EBITDA growth could approach underlying EBITDA, analysts added.
“We estimate advertising alone has contributed more than 100% of eBay's total EBITDA growth since 2019, driven by 130% growth in advertising revenue flowing through at a 70% margin,” they wrote.
“We expect slowing advertising growth to eliminate a key source of margin and reinvestment capabilities, resulting in downside to both gross merchandise value (GMV) and EBITDA.”
Reliance on China, which has been a key source of faster growth, also increases the risk of downside to forward GMV.
“China is beginning to slow, with growth moderating from 17% in the first half of 2024 to just 10% in Q3 2024,” they noted. “If China were to decelerate back to 7% in fiscal 2025, we estimate it would represent nearly a 100 basis point headwind to growth,” analysts wrote.