eBay (Buy, $38 PO)
Stock view: Marketplace growth should improve in 2017
eBay’s 4Q results showed signs of Marketplace improvement, with improving mobile and C2C trends and a modest pickup in new buyers. Management expects to put marketing dollars behind this trend to drive Marketplace growth momentum in 2017 (guidance calls for 1 point of acceleration in Marketplace volume in 1Q, with 2 points for the full year). Expectations have risen since the start of the year, and we think eBay needs to deliver 1 point acceleration in US GMV growth vs 1Q to maintain confidence in management’s execution. There is also significant interest in eBay’s first party ad strategy and potential improvement in transaction take rates (at expense of MS&O revenues).
The potential structured data impact also remains top of mind for investors as structured data will provide the backbone for improving customer search and product experiences. As of 4Q’16, there are 180mn+ structured data pages v. 100mn+ pages at the end of 3Q’16. More pages are expected in 2017, which will start to be exposed to core organic traffic. Management appears confident that the impact of structured data would increasingly benefit results and that structured data formats will be much more visible by holiday 2017. Overall, if 1Q results are at/above expectations, we think the stock will reflect even more optimism on structured data improvement.
For margins, we expect continued pressure in 2017 as the company ramps up marketing spend and increases its Al capabilities. If the company can manage to accelerate top line growth through conversion rate improvements, some of the upside may be invested, limiting 2017 earnings flow through (but benefitting growth in 2018). Therefore, we think customer, transaction and revenue trends most important for 2017, but lack of margin flow through could be sentiment headwind for the stock.
Key theme/metric(s) for 1Q: Marketplace growth/outlook
Our model assumes US GMV growth of 3.5% y/y, an 80bps q/q acceleration off an 80ps easier y/y comp, while we anticipate 6.0% y/y Intl ex-FX GMV growth. US acceleration (despite a modest Leap Year headwind) is likely needed to maintain increased management confidence. Our model assumes 8.3% take rate, which is up 10bps y/y and could be aided by the early transition to 1* party advertising on the site. eBay’s 1Q revenue guide implies 5% y/y ex-FX growth at the midpoint, while the 2017 revenue guide calls for 7% ex-FX growth, implying revenue growth acceleration during the year.
Chart 9: eBay quarterly GMV and revenue y/y growth
10% 5% 0%
-5%
-10% -15%
-20% 1Q15A 2Q15A 3Q15A 4Q15A 1Q16A 2Q16A 3Q16A 4Q16A 1Q17E 2Q17E 3Q17E 4Q17E
===—=Revenue Growth =-==—=GMV Growth
Source: BofA Merrill Lynch Global Research estimates, company report
Biggest 1Q issues/risks: * Overall GMV growth remains muted as structured data changes still early, reducing confidence in future improvement.
BankofAmerica <2 ; ; Merrill Lynch Internet/e-Commerce | 06 April2017 17
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