EBay Inc. has long tempted online shoppers with a wide range of discount merchandise. Now bargain hunters are looking at its shares as well.
The San Jose, Calif.-based merchant saw its stock price rise by as much as 5 per cent on Monday following a surge in online Black Friday sales and despite recent management warnings that the company faced a ho-hum holiday shopping season.
A crowd of Wall Street analysts seem confident that eBay is well positioned to capitalize on consumers' shift toward e-commerce. The company's strong gains in sales recorded over the crucial Thanksgiving shopping period in the United States helped propel the stock higher on so-called Cyber Monday, when many online retailers unveil deep discount deals.
"We believe the recent surge in data may enable investors to breathe a sigh of relief," Stifel analyst Jordan Rohan said in a note on Monday. "We would add to positions in eBay here."
He is one of 32 analysts who have a "buy" rating on eBay, while another seven recommend it as a "hold," according to Thomson Reuters I/B/E/S. Their consensus share price target over the next year of $61.97 (U.S.), compared to a close on Monday of $51.35.
Trading at 16 times earnings, eBay is considerably cheaper than rival Amazon.com Inc., which changes hands for 141 times profits, according to data from S&P Capital IQ.
Both companies are benefiting from a shift by shoppers toward shopping from their computers. Online sales among all retailers in the U.S. jumped 21 per cent on Thursday from a year earlier, and 15 per cent on Black Friday, according to analytics firm ComScore.
EBay's global sales rose 26.2 per cent on Thursday, 38.7 per cent on Friday and 28.1 per cent on Saturday, beating Amazon.com by a few percentage points on the last two days, according to ecommerce consultancy ChannelAdvisor.
EBay's sales are being driven in part by shortages of popular electronics, including Microsoft's Xbox One and Sony's PlayStation 4, that the company has available for resale, ChannelAdvisor says. About 70 per cent of what eBay sells are fixed-priced items, while the rest are sold through an auction process.
The company has been in turnaround mode for the past couple of years, as it expands its e-commerce and electronic payment divisions to better compete in the online space. Its growing PayPal division, which offers an electronic payment service, accounts for about 40 per cent of annual revenues.
EBay shares rocketed upward by about 70 per cent in 2012, but have produced next to no return this year as investors worry about its competitive position and new tax legislation in the U.S. that threatens its margins.
The biggest question of all has been whether the American consumer is willing to increase his and her online spending. In October, eBay management downplayed prospects for sales growth in the key holiday season, citing "dramatically decelerating U.S. e-commerce growth."
The shares hit a 52-week low of $48.06 (U.S) on the Nasdaq early last week, but have bounced back every day since.
Stifel's Mr. Rohan expects eBay shares to keep climbing and hit $63 within the next 12 months.
RBC Dominion Securities analyst Mark Mahaney also has a "buy" on eBay stock citing new growth opportunities for the company including the potential to handle offline payments with its recent purchase of a firm called Braintree, as well as its eBay Now service, which promises local delivery of products in about one hour.
"After losing share to Amazon and other competitors in earlier years, we believe that eBay is proving out a successful pivot," Mr. Mahaney said in a recent note.
Still, some investors are turned off by eBay's wild swings over the past year. Since April, it has zigzagged between $48 and $58.
"It's just too volatile for me," said Michael Bowman, portfolio manager with Wickham Investment Counsel Inc.