Investing.com -- Jefferies downgraded eBay Inc (NASDAQ:EBAY). to "underperform" from "hold," citing slowing advertising revenue, increased marketing spending, and risks from a slowdown in China as factors likely to weigh on the company's profit growth.
The brokerage noted eBay's declining EBITDA, which it estimates has dropped significantly over recent years due to falling revenues and rising costs. Despite reported EBITDA gains in the past five years, Jefferies believes these were largely driven by temporary tailwinds such as advertising growth and cost-cutting measures.
"We see decelerating advertising revenue combining w/ increased marketing investments for sluggish profit growth and downside to cons. In addition, a recent slowdown in China eliminates a key tailwind to growth and further increases risk to numbers," the note said.
eBay's advertising growth, once a key driver of profitability, has decelerated sharply. Jefferies noted that while advertising had contributed substantially to EBITDA growth since 2019, recent quarters have shown a marked slowdown, which could reduce margins and reinvestment capacity.
Additionally, eBay's reliance on its China business for growth in categories like auto parts and accessories has become a vulnerability as growth from the region moderates.
Jefferies cut its price target on eBay to $52 from $60, on expectations for below-average EBITDA growth compared to peers.