eBay Climbs on Morgan Stanley Double Upgrade

(Editor's Note: This is an article that was originally written in 2018 and accidentally republished with today's date on it. The information herein is old and no longer reliable. We apologize for the error.)

eBay Inc.’s (EBAY) shares rose 3.42% in pre-market trading after one Wall Street firm switched from bearish to bullish on the stock.

In a research note, reported on by Reuters, Morgan Stanley upgraded eBay by two notches from "underweight" to “overweight” based on its confidence that the online auctioneer’s payments initiative can dramatically boost company profits. In February, the company announced it was switching from PayPal Holdings Inc. (PYPL) to Dutch firm Adyen BV for payment processing.

Morgan Stanley, which now identifies eBay as its top large-cap pick, slapped a $58 price target on the stock, representing 43% upside from Tuesday’s closing price of $40.61 and a 61% jump on its prior price target of $36. The median price target on eBay, according to Reuters, is currently $49.

These sharp upgrades were introduced to reflect Morgan Stanley’s view that eBay’s payment platform has the potential to expand the company’s buyer base considerably. The brokerage estimated that new initiative can drive faster gross merchandise value (GMV) growth and lift eBay’s promoted listings ad business at a compound annual growth rate of about 110% from 2017 to 2020.

Analyst Brian Nowak claimed that eBays payment business should be able to achieve revenues of $2.6 billion by 2021, adding that a sharp rise in advertising turnover to $450 million, in particular, will help to lift profits. Stronger sales of high-margin ads, Nowak predicted, could pave the way for earnings before interest and tax (EBIT) growth of 20%.

Morgan Stanley’s bullish assessment of eBay’s prospects came one week after another Wall Street brokerage spoke highly of the company. In a separate note, Keybanc said eBay's focus on retail tech and artificial intelligence should lift the online auctioneer’s GMW growth to 5.8% in 2017. (See also: 10 Techs Pulled Down By Facebook Now Poised to Rise.)

Analysts at KeyBanc applauded eBay for successfully transitioning into a platform that offers increasingly cost-conscious consumers competitive prices and developing initiatives to "enhance customer experience and attract brands." Recent improvements, including a larger number of fixed-price goods, new merchandise and guaranteed delivery, as well as the use of artificial intelligence in customer support tools, led Keybanc to predict that eBay’s stock could reach $50. (See also: eBay a Bargain as Street Misses Prospects: KeyBanc.)

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