ThinkEquity has upgraded online auctioneer eBay Inc. (NASDAQ:EBAY) to buy from hold on improved growth in Marketplace business.
The company's marketplace platform consists of its core eBay.com and localized sites as well as adjacent platform including StubHub.com, Shopping.com, Half.com, Rent.com and classified Websites. In the first quarter, Marketplace segment accounted for 63 percent of total revenues.
We believe continued improvement in the U.S. Marketplace business as well as stable Europe Marketplace growth (double-digit growth in 1Q) could serve as a catalyst for shares, analyst Aaron Kessler wrote in a note to clients.
Kessler expects the Marketplace business to benefit from an anticipated continuation of improved user experience, growth from larger and top-rated sellers, increased mix of fixed price sales and stable auction sales.
Recently, ChannelAdvisor indicated that eBay's April marketplace growth was 10.9 percent, up from 4.9 percent in the first quarter as it is benefiting from a higher mix of fixed price sales, improved user experience such as Parts & Accessories, and strength from larger merchants.
The analyst also expects Payments business growth to remain robust in 2011 driven by increasing penetration on eBay, continued robust Merchant Services growth driven by global expansion and increased merchant share. eBay's Payments business consists primarily of PayPal and Bill Me Later.
Meanwhile, the growth of PayPal for digital goods platform (i.e. gaming, music, news subscriptions), recently announced integration with Facebook and Xbox coupled with growth of mobile payments also bodes well for the Payments division.
While we think increased apprehension over Payments competition (i.e. Google, credit card companies, banks, and handset makers) has been a concern recently, we believe that PayPal's leadership position, with nearly 100 million active accounts and strong technical expertise (i.e. fraud detection, cross border trade) provides PayPal with an early advantage, Kessler said.
Kessler also raised the price target on eBay stock to $38 from $36.
Shares of eBay closed Friday's regular trading session at $30.68 on Nasdaq.