Morgan Stanley raised its rating on eBay shares to overweight from underweight in an unusual double upgrade and increased their share price target to $58 a share from $36. This has given eBay shares a boost on the Nasdaq stock exchange.
Morgan Stanley analyst Brian Nowak said in a note to investors:
We expect eBay to start intermediating its own payments (pulling away from PayPal) in ’18 as management stated on its 4Q:17 conference call, with a planned full transition in mid-2020. We are bullish about this initiative as we’ve seen other leading platforms observe higher user conversion/spend from.
As a payment intermediator, eBay will be responsible for collecting funds from buyers and instructing payment processors to disburse funds to merchants, which is currently done by PayPal. EBAY acting as both marketplace and payment intermediator could simplify and reduce costs for merchants, who would pay a single fee to eBay.
We could be early, as the market may not give eBay credit for its 2021 payments business for some time. That said, we expect the ’18/’19 testing/gradual roll-out to act as sign posts for progress.
– Brian Nowak, Morgan Stanley analyst
Nowak also said that ditching PayPal will most likely increase the marketplace’s chances of increasing the buyer base and prompt greater gross merchandise sales. The note also predicts it will mean an increase in earnings before interest and taxes (EBIT) by 20% in three years with an estimated 52% increase in gross payment margins over the same period.
Of particular interest in this analysis, because it seems obvious that it will increase eBay’s take and margins, is the prediction that intermediated payments with Adyen will lower costs for merchants and a single fee will be payable.
eBay and PayPal won’t be “double-dipping” and taking one fee for the marketplace and another being to PayPal for payments. If this is truly the case, that’s going to be good news for merchants. Tamebay wrote about the “6 Things we want from Adyen on eBay” recently .