Ebay Stock Won’t Get a Pop From Earnings

by Dan Burrows | January 22, 2014 12:17 pm

Ebay Stock Won’t Get a Pop From Earnings

The Ebay (EBAY[1]) earnings report lands Wednesday after the closing bell, and although Wall Street expects solid profit and sales growth, a weak holiday selling season could cause eBay earnings to miss estimates — and that will likely weigh on eBay stock.

eBayNew185 Ebay Stock Won't Get a Pop From Earnings[2]

The eBay earnings report is projected to show that earnings per share grew to 80 cents from 70 cents in the year-ago quarter. Additionally, the eBay earnings report should show revenue growth of nearly 14% to $4.54 billion, according to Wall Street estimates.

Those are strong figures — especially the sales growth — but the earnings whisper number is actually lower than 80 cents per share because eBay had a relatively weak holiday selling season, some analysts reckon. In fact, the Zacks earnings whisper number puts eBay earnings at just 71 cents per share — a miss of 9 cents. That sure wouldn’t give eBay stock a boost.

A shorter holiday selling season, as well as higher costs, will take the blame. JPMorgan analyst Doug Anmuth told clients via a research report that eBay revenue will likely come up short, as third-party data trackers suggest a slowdown in holiday volume for all general merchandise retailers.

There’s also a chance that the company could pare its outlook as part of the eBay earnings report. Morgan Stanley warned clients that the cut in eBay 2014 guidance could be larger-than-expected.

That said, PayPal is expected to show solid growth, and the Marketplaces business should continue to improve. Furthermore, eBay earnings should show that its streak of at least 10% revenue growth extends to a 12th consecutive quarter.

Ebay Stock Has Been a Dud

If eBay earnings do come up short, it won’t exactly be a surprise, as the earnings calendar has served up an unusually high percentage of companies missing estimates. As of Jan. 17, only 52%¬†of the 52 companies in the S&P 500¬†reported earnings above expectations, according to S&P Capital IQ. That’s well short of the average of 67% for the last four quarters.

And it’s not as if investors have to worry about an overheated eBay stock dropping sharply on a weak eBay earnings report. Despite showing signs of improvement in all facets of its operations, eBay stock has been a dog for a while. Ebay stock is essentially flat over the last 52 weeks, swinging between $48 and $58 a share. The S&P 500 is up 24% over the same span.

Despite an earnings whisper number that has eBay earnings missing by a wide margin — and expectations of a deep cut to eBay’s outlook — Wall Street remains bullish on eBay stock over the next 12 to 18 months. Of the 42 analysts covering eBay stock, 14 call it a Strong Buy, 17 have it at Buy, and 11 say it’s a Hold. No analysts have slapped eBay stock with a Sell rating heading into earnings.

Ebay stock looks attractively valued heading into the eBay earnings report, fetching 17 times forward earnings with a long-term growth rate of 14%. But if the eBay earnings whisper number comes to pass, eBay stock will get a bit cheaper still.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

Endnotes:
  1. EBAY: http://studio-5.financialcontent.com/investplace/quote?Symbol=EBAY
  2. [Image]: http://investorplace.com/wp-content/uploads/2012/09/eBayNew185.jpg

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