With Paypal’s spin-off from eBay Inc (EBAY, Financial) set to take place in the latter half of this year, analysts are now focused on understanding growth strategy of each company post separation. Susquehanna analysts recently held a meeting with PayPal CEO Dan Schulman and CFO Patrick Dupuis in order to understand the company’s long term strategy.Â
"The CEO articulated his view that as the financial services industry undergoes technological reinvention, PayPal will press their lead through software capabilities and engineering,
He is using direct sales to message the PayPal value proposition into the large merchants - a better mobile software gateway in PayPal Braintree, a superior security solution with PayPal pattern recognition, and 165 mln dedicated users."
In particular, analysts believe Paypal’s Braintree offering can help the company gain significant traction in mobile transactions. Mobile transactions are leading payment growth but industry data indicates that there is a problem with conversion rates when customer shifts to mobile. "Braintree by contrast helps lift mobile conversion, and is the toolkit for PayPal to close merchants looking for a mobile payments solution," the analysts wrote.
Overall, Susquehanna analysts remain bullish on EBAY and have a Buy rating with target price of $75. I agree with them and believe EBay is a good buy at current levels. The company has seen a good growth in the recent past and 2015 is a transition year for the company. The company plans to separate its eBay and Paypal businesses. Management is working on the operating agreement between the two companies. Their guiding principal is to provide each business with a strategic flexibility to maximize its independent potential while maintaining the synergies that have been captured and created over the year. In addition, eBay is also pursuing the sale or IPO of the eBay enterprise business so that it can focus on its two core business.
The company is making good progress towards this separation. In April, eBay’s CEO and incoming CEO designate shared their growth plans for the company post spin-off. Recently, the company finalized Board of Directors for the post spin-off eBay and Paypal. I believe this separation will create substantial value for the investors once it is complete.
eBay is trading at 18.70 times FY2015 consensus EPS estimates. According to sell side estimates, the company’s revenues are expected to grow 6.20% in the current year and 10.50% next year. Out of 41 analysts covering the company, 19 are positive and have buy recommendations, 20 have hold ratings and two have sell ratings. eBay is one of the best in class ecommerce and payments company. The company's longer-term growth outlook remains solid. Further, the separation of the three business – ecommerce, payments and enterprise – will unlock value for the shareholders in the short term. The stock looks attractive given the company's long term growth potential and reasonable valuation.
