What to Know Before Wednesday’s eBay Earnings News

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Online-auction company eBay (EBAY) announces last quarter’s earnings after the market closes on Wednesday. And if the pros are right, the organization is going to report a profit of 67 cents per share of EBAY stock on $4.37 billion in revenue. As is always the case, however, there’s more to the upcoming eBay earnings report for Q3 than just the numbers for last quarter.

What Matters Most With EBAY Stock Right Now

eBay stock So if not just third-quarter results, what else might fans and owners of EBAY stock want to embrace — if they can — on Wednesday?

Although the split of PayPal and eBay’s e-commerce marketplace is still months away, mentally, investors are already viewing the company as two distinct entities. In fact, they were doing so long ago, noting how online payment processor PayPal has been growing at a much faster clip than the auction and e-commerce division.

For perspective, eBay Marketplaces — the online sales venue — pumped up its top line to the tune of 9% in the second quarter. Not bad … but the PayPal division beefed up its top line by 20% in Q2, on a year-over-year basis. Those figures are in line with growth rates each unit has been posting for the past four quarters.

One of the often underappreciated (and frequently unrecognized) aspects of this two-pronged company, however, is that eBay enjoys much wider margins than PayPal does. Broadly speaking, PayPal only clears about 25% of its revenue as a profit, while eBay Marketplaces clears about 35% of its sales as profits. It’s not an insignificant difference.

Still, spinoff supporters say the split of EBAY stock into two separate stocks is a win/win scenario, divvying up the slower-moving cash cow and the faster-growing payments division, allowing investors greater choice of how they want to deploy their capital.

An investor may want to rethink his or her growth expectations for the soon-to-be-independent PayPal, though. Why’s that? To give credit where it’s due, it was 451 Research’s senior analyst Jordan McKee who best explained by saying, “Everyone is out to eat PayPal’s lunch. Now more than ever, PayPal needs to innovate, be nimble and move fast to fend off these competitive threats.”

And he’s right. With Apple (AAPL) and Amazon (AMZN) getting deeper into the digital payment business, the era of big, easy growth for PayPal is apt to be over. From here, PayPal will need the focus that only being a stand-alone company can provide, and even then it’s unlikely that PayPal will be able to keep up its recent growth pace without spending heavily. Those profit margins could thin before stabilizing, while eBay’s margins continue to churn out sizable cash flow.

Although it’s unlikely this concern is going to be directly addressed in the eBay earnings announcement Wednesday afternoon, it’s a theme would-be owners of either company should start working better to understand now for the point when the eBay/PayPal split finally unfurls in the middle of next year.

Ebay Earnings Estimates for Q3

With all of that being said, the eBay earnings announcement is still an earnings announcement, and can be treated accordingly. Specifically, Wednesday’s news should be interpreted in the context of the company’s history, and predicted future.

As was noted, analysts believe the company earned 67 cents per share of EBAY stock last quarter, on the heels of $4.37 billion in revenue. That’s up from 64 cents and $3.89 billion from the same quarter a year earlier.

And just for the record, the past four eBay earnings reports were better than estimates. In fact, the company topped estimates in ten of the past twelve eBay earnings announcements; betting on a shortfall this time around would be an ill-advised wager.

On the sales front, eBay has been just as reliable, though the company also whittled down its revenue outlook in late September due to a cyberattack that forced all eBay account holders to change their passwords. Between the loss in confidence and the sheer annoyance factor, eBay was concerned at least a small handful of online shoppers would shop elsewhere for a while.

Just as important as last quarter’s results will be the outlook announced with the Wednesday’s eBay earnings news. Analysts are currently expecting a profit of $2.97 per share of EBAY stock for the full fiscal year. That’s up from $2.71 per share in 2013.

As of right now — not factoring in the spinoff — eBay is expected to earn $3.37 per share in 2015. While it’s unlikely we’ll see any major (or even minor) changes to the long-term outlook when we hear the eBay earnings report, any adjustment could bump the stock around. Ditto for the long-term revenue outlook.

The pros expect the top line to grow 13.2% from last year’s $16.05 billion to $18.16 billion this year to $20.68 billion next year. Again, any alteration to that revenue growth outlook could put some pressure on EBAY stock, though it’s unlikely we’ll see any changes at this juncture.

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


Article printed from InvestorPlace Media, https://investorplace.com/2014/10/ebay-stock-ebay-earnings/.

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