eBay stock sinks after UBS downgrades due to slowing user engagement
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eBay (NASDAQ:EBAY) shares are likely range-bound as user engagement continues to erode, according to UBS analyst Kunal Madhukar.
Madhukar noted that the stock has been comparatively resilient in the eCommerce space, bolstered by an aggressive shareholder return program. Shares have âonlyâ declined about 33% year to date, far better than the stark slides for many of its peers. However, he expects that the stock is also likely to be a slower grower should markets rebound, leaving less-than-attractive upside at the present entry point.
Yet, most concerning for the UBS analysis is the expectation of lagging user engagement trends.
âOur analysis of UBS Evidence Lab data suggests app downloads and visitors have continued to trend lower despite easier comps,â Madhukar explained. âOur 2Q expectations are largely unchanged, and are in line with Street consensus. However, we are reducing our GMV growth estimates to below Street levels in future periods.â
Given this tempered outlook, Madhukar cut his rating on shares to âNeutralâ from a prior âBuyâ and reduced his price target to $48 from $60. In short, he argued the risk/reward dynamics in the current market environment, alongside adverse user trends, make the stock difficult to recommend.
âWith the platform losing buyers, and with app traffic declining, even aside from a recession scenario, it is tough to see how its tech-led reimagination initiative could drive mid-single-digit growth for the overall platform on a sustainable basis,â Madhukar concluded. âWhile we remain optimistic around the potential for advertising to drive faster revenue growth - compared to overall volumes - we think the shares are appropriately valued for the opportunity.â
Shares of the San Jose-based eCommerce company slid about 2.5% in Tuesday's premarket trading on light volume.
Read more on Morgan Stanley's warning about upstart competitors to eBay.