EBay Shares Have 15%-20% Upside - Forbes.com

EBay Shares Have 15%-20% Upside - Forbes.comEBay Shares Have 15%-20% Upside
07.21.05, 11:38 AM ET

Goldman Sachs maintained an "outperform" rating on eBay (nasdaq: EBAY - news - people ) and said it sees a "15% to 20% appreciation potential" for the stock. EBay reported yesterday upside results for the second quarter and higher full-year guidance, citing favorable currency exchange rates and business momentum.

"The broad-based strength delivered across countries, categories, and selling formats demonstrates the responsiveness of the business to new initiatives. Additionally, results reinforce our view that the growth opportunity remains vast and our confidence in our 2006 $1.03 EPS estimate," said Goldman Sachs. "We reiterate our 'outperform' rating on eBay as we see 15% to 20% appreciation potential to our $45 implied value."

The research firm said the "most impressive" aspect of the quarter was eBay's accelerating year-over-year revenue growth, up 40% compared with 36% in the first quarter. "The revenue acceleration reflects strong unit growth and higher ASPs [average selling prices]/close rates," it said. "The improvement in these metrics implies that the relative value eBay provides sellers continues to increase."

Goldman Sachs noted that eBay shares, based on a share price of $40, trade at an enterprise multiple of 23.6 times estimated 2006 earnings before interest, taxes, depreciation and amortization, or EBITDA--20% above Yahoo! (nasdaq: YHOO - news - people ) (19.6 times) but 15% below Google (nasdaq: GOOG - news - people ) (27.7 times). "We continue to believe that eBay represents the best business model within the Internet sector, growing revenue 50% faster and EBITDA twice as fast as the average e-commerce company reflecting its numerous growth opportunities including geographic expansion, category expansion, and pricing formats, with natural barriers to entry given the benefits of network effects," the firm said.