While it might be overdoing thing to call the third quarter a bang-up quarter for eBay (EBAY), the bullish post-earnings response from EBAY stock says the market was pleasantly surprised and encouraged again about what the future holds.
There’s still work to be done, to be sure. The company is still getting used to life without PayPal (PYPL), which was officially spun off on July 17.
And relatively new CEO Devin Wenig has taken the helms of eBay when struggling to regain its product-visibility within the all-important Google search engine.
But there’s a new glimmer of hope for the company, and investors may be right to take a swing.
Digging Into eBay Earnings
When all was said and done for Q3, eBay earned an adjusted operating profit of 43 cents per share on $2.1 billion in revenue.
Both were down from year-ago levels of 46 cents, and $2.14 billion, respectively, extending a year-long string of increasingly-weaker numbers. Yet, both the bottom line and the top line for the third quarter rolled in better than anticipated. Analysts had only been calling for earnings of 40 cents per share of eBay stock, and revenue a little less than the $2.1 billion eBay drove last quarter.
It’s a small victory for the big company, but a relatively major victory given eBay’s situation. And it’s a huge moral victory for Devin Wenig, who has been forced to put changes in place even before he had a chance to rearrange his office furniture after being named CEO following the spinoff of PayPal.
Though the problem is abating, eBay is still dealing with a dent in its credibility made last year after nearly 150 million users of the site had their user names and passwords hacked.
At the same time, changes made last year in the way the Google search algorithm works has pushed eBay’s listed items further down search results, making it more difficult for users to find those items in the first place, in turn making a shopper less apt to buy that item via eBay.
In that light, the net addition of 2 million new buyers during the third quarter plus the 3% improvement in gross merchandise volume in the United States suggest eBay may finally be pulling out of its funk. In turn, eBay stock may finally be a buy again.
Looking Ahead
In light of Q3’s results, eBay opted to raise its Q4 and full-year earnings outlook. The company now believes it will post a profit of 47 cents to 49 cents per share of eBay stock, versus a consensus estimate of 49 cents. Revenue should flow in between $2.275 billion and $2.325 billion, whereas the pros are calling for a top line of $2.33 billion, on average.
One can’t help but wonder, however, if that’s a lowball number. Even after adjusting for the PayPal spinoff, the online-auction company earned 55 cents per share of eBay stock in the fourth quarter of last year.
Lowballed or not, Wenig is telling investors to expect bigger things in the future, saying “We are not settling comfortably into a 5 percent or 6 percent growth rate. We are not satisfied with that,” implying a return to the strong growth rates of yesteryear.
The saga is far from over yet, but last quarter’s numbers do indeed say the turnaround effort is starting to finally take hold.
The company is still moving in the wrong direction, to be clear. But, the “just barely” nature of that deterioration, coupled with the new life Devin Wenig has already brought to the table has turned EBAY into an opportunity rather than a liability. Besides, time heals most wounds, and it has certainly helped some of eBay’s.
As for timing, while Wednesday’s 12% pop may be merited, the sheer size of that gain plus the bullish gap it left behind makes it tough to jump into eBay stock right away. Would-be owners may want to let some of the froth melt away first before taking a swing.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
