Upside On eBay’s Stock Price Is Limited

On March 11, eBay Inc. (EBAY) held its analyst meeting and outlined its 3-year “Roadmap for Growth.” The company provided details of its strategies to drive leadership in its two core businesses: PayPal, a global online payments business, and its Marketplaces business, an e-commerce site that connects buyers and sellers.

The company continues to rapidly extend its global leadership in online payments through PayPal, which management believes offers a bigger opportunity than eBay Marketplaces because PayPal targets all of e-commerce. More importantly, the company indicated that it is aggressively remaking and transforming its Marketplaces business by diversifying across a range of formats such as classifieds and advertising that are expected to grow faster than ecommerce.

eBay also provided its financial outlook through 2011. The company believes it can reach total company revenue of $10 billion to $12 billion in 2011; mid-single digit earnings growth in 2011; free cash flow of $6 billion to $7 billion from 2009-2011; PayPal revenue of $4 billion to $5 billion; Marketplace revenue of $5 billion to $7 billion in 2011; and Skype revenue over $1.0 billion in 2011.

We liked hearing about the growth potential for PayPal and Skype. The company’s strategy to reboot Marketplaces should have a positive effect on the company’s future results.

Even so, we maintain our Hold rating on the stock. The company’s largest segment, Marketplaces, will continue to weigh down overall results for the next few years, and that will limit the upside in its stock price.

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