What is Driving eBay?
eBay is one of the largest online retailers in the world. The company’s focus on improving buyers’ experience, opportunities in the fast-growing mobile space, international expansion and a strong balance sheet are likely to boost long-term growth.
The price appreciation could be attributed to eBay’s strong fundamentals and better-than-expected first-quarter results released on Apr 22. Since then, the stock has moved up almost 11.4%.
eBay’s first-quarter earnings of 67 cents beat the Zacks Consensus Estimate of 58 cents by 15.5% despite the significant negative Fx impact. The solid results were driven by the company’s payment division, PayPal. Sales in eBay’s marketplace declined 4% year over year to $2 billion. Meanwhile, PayPal’s revenues grew 14% to $2.1 billion, slightly better than the marketplace division.
However, eBay has been taking necessary measures to strengthen its marketplace business, beginning with the fixed price format, moving on to attracting big sellers and customers, improving the technology and navigation of its properties, investing in better fulfillment services and especially targeting mobile customers. Its drive to provide complete online solutions for traditional retailers should further add to this growth. Also, the company will be able to reinvest the money it was putting into PayPal to further its own growth plans.
Earnings guidance for the second quarter was also better than expected. The company expects to generate GAAP EPS within 44 cents to 49 cents and non-GAAP EPS in the range of 71 cents to 73 cents. The EPS guidance is better than the Zacks Consensus Estimate of 58 cents.
The relatively improved bottom-line projection further indicates that the company’s growth momentum is likely to continue. Revenues are expected in the range of $4.40–$4.50 billion (flat sequentially but up 1.9% year over year at the mid-point).
Also, eBay plans to cut 2,400 jobs, or 7% of the workforce, across its three operating segments and has already started taking related charges in the last quarter. This job cut will further reduce operational costs in these divisions. We believe that a leaner cost structure will boost eBay’s margins and earnings growth in the near future.
Additionally, the company recorded a positive earnings surprise of 15.5% in the last reported first quarter. The stock has also delivered an average positive earnings surprise of 5.19% over the trailing four quarters. This Zacks Rank #3 (Hold) stock has a market cap of approximately $76.81 billion and a long-term expected earnings growth rate of 12%.
We believe that the PayPal spin-off could help eBay continue its growth momentum and boost investors’ confidence in the stock.