Low U.S. Consumer Confidence is the Biggest Threat to eBay’s Stock
With U.S. consumer confidence slumping to near the 2009 recession levels, [1] e-commerce giant eBay (NASDAQ:EBAY) has reason to worry. Given that eBay’s online transactions see a sharp increase in Q4 due to the holiday season, the company’s marketplaces division may take the biggest blow.
PayPal is the largest contributor to eBay’s stock, and the marketplaces division shows a strong seasonality while approaching the Oct-Dec period. This is primarily because consumers historically spend more during holidays. To provide a perspective, eBay Marketplaces’ sequential revenue growth was essentially flat from Q1 2010 to Q3 2010 while it increased by almost 6% for Q4 2010. [2]
However, this rather unexpected slump in consumer confidence could weigh on growth if consumers spend less in online ones. eBay’s payment platform PayPal could also bear the brunt as the division’s revenues are directly linked to total purchase volume.
We have a revised price estimate of around $39 for eBay’s stock, which is about 17% above the current market price.
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