Online marketplace retailer eBay Inc. (EBAY) is slated to step into the earnings limelight after the close tomorrow afternoon. EBAY stock has struggled recently, with the shares down roughly 5.5% since December, and the company’s earnings situation isn’t looking too rosy, with eBay facing lagging sales growth compared to its peers in online retailing thanks to a stronger dollar, a security breach and changes to Google’s SEO methods.
All in all, EBAY stock investors have their work cut out for them heading into tomorrow’s quarterly report.
Diving into the numbers, eBay has guided adjusted earnings to between 73 and 76 cents per share — a range well below expectations for earnings of 89 cents per share. Additionally, revenue guidance currently stands at $4.85-$4.95 billion, versus the consensus estimate for $4.94 billion in sales.
Ebay’s PayPal division should continue to be a bright spot for the company, with revenue expected to grow by more than 20% year-over-year to about $2.2 billion. However, with next year’s planned PayPal spinoff, EBAY stock investors will be looking closely at results for the company’s struggling Marketplaces unit, which is expected to report mediocre results.
Turning to the sentiment front, the brokerage community has a mixed opinion of EBAY heading into the company’s quarterly report.
EarningsWhisper.com places the fourth-quarter whisper number at 90 cents per share, offering up a spot of optimism for eBay. However, Thomson/First Call data reveals a bearish lean from the brokerage bunch. Currently, 22 of the 41 analysts following EBAY stock rate the shares a “hold” or worse. Additionally, the 12-month consensus price-target of $58 represents a mere 8% premium to EBAY’s close at $53.66 on Monday. This backdrop provides ample room for improvement, but it may take some doing for eBay to garner any upgrades or target-price increases.
On the options front, short-term traders are sending mixed signals for EBAY stock. For instance, the January/February put/call open interest ratio of 0.44 rests less than 20% away from an annual low, with call open interest more than doubling put open interest for the series. However, the weekly Jan. 23 put/call open interest ratio comes in at 2.88, with puts nearly three times as popular as calls.
In other words, expectations for a post-earnings rally are low, but potential news on the PayPal spinoff could send EBAY stock higher further down the road.
Click to Enlarge Overall, implieds for weekly Jan. 23 options are pricing in a potential post-earnings move of about 5% for EBAY stock. This places the upper bound near $56, which is home to EBAY’s 20-day moving average, while the lower bound rests in the $50 region, home to long-term technical support.
Options Trade on EBAY Stock
Barring any unexpected earnings growth, and any fresh updates on the Marketplaces or PayPal units, the path of least resistance for EBAY stock following earnings appears to be lower.
Traders looking to position themselves ahead of tomorrow’s report may want to consider a Feb $50/$55 bear put spread.
At last check, this spread was offered at $1.87, or $187 per pair of contracts. Breakeven lies at $53.13, while a maximum profit of $3.13, or $313 per pair of contracts, is possible if EBAY stock closes at or below $50 when February options expire.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
