It’s certainly been a good summer for eBay Inc (NASDAQ:EBAY), with the stock up about 40% since late June. But the real test will come next week when the company reports its earnings (which will be on Wednesday after the market closes). Will the company show that the core business is showing real improvement?
Well, let’s take a look at the Wall Street expectations. The consensus is for eBay earnings to come to about 44 cents a share — up by 1 cent a share compared to the same period a year ago — and revenues to hit $2.19 billion, which would represent a 4.1%.
According to a report from Zacks: “Our proven model shows that EBAY is likely to beat estimates this quarter.”
The Good News for EBAY Stock
OK, why the giddy optimism? Let’s face it, EBAY is still growing at a sluggish pace and there is tremendous pressure from tough rivals like Amazon.com, Inc. (NASDAQ:AMZN).
Hey, even Facebook Inc (NASDAQ:FB) is a threat. During the past few weeks, the company has launched its own listings service. No doubt, FB has big-time advantages like its massive user base, demographic data and mobile assets. But the online service will also have no transaction fees.
Kind of worrisome, right? Definitely.
Yet there are still several catalysts that could still mean there is further strength for eBay stock. After all, the company has a formidable platform, with 164 million buyers and roughly 1 billion listings.
It also looks like eBay stock could get a boost from the company’s investments in improving the overall design of the website and mobile apps. Part of this has even included Virtual Reality technologies, such as to allow for immersive experiences when buying tickets when using StubHub (which is a major EBAY property).
Because of all these efforts, Deutsche Bank AG (USA) (NYSE:DB) analyst Ross Sandler has put a $40 price target on eBay stock. In his report, he noted that replatforming initiatives were also catalysts for other dot-coms like Expedia Inc (NASDAQ:EXPE).
Something else: EBAY seems to understand that it is a losing battle to fight against AMZN. So instead of building expensive infrastructure to allow for logistics and fast delivery, the company has instead been investing in new technologies like visual search, data analytics and machine learning. Just look at the recent acquisitions for companies SalesPredict, Expertmaker and Corrigon.
And finally, it looks like EBAY has gotten a boost from the ebullient M&A wave in the tech sector, with standout deals like Microsoft Corporation‘s (NASDAQ:MSFT) $26 billion purchase of LinkedIn Corp (NYSE:LNKD).
The fact is that mega tech operators are looking for ways to find new growth sources. And as for EBAY, there are some interesting potential suitors, including Alibaba Group Holding Ltd (NYSE:BABA) and Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG).
Although, as seen with the recent implosion of Twitter Inc (NYSE:TWTR), betting on M&A buzz can be dangerous for investors. So with EBAY, the best approach is to stick to the fundamentals — and the good news is that it appears that the company is at a point where there is true improvement in the business.
Tom Taulli runs the InvestorPlace blog IPO Playbook and also OptionExercise.com, which provides interactive tools and financial services for those who have employee stock options (pre- and post-IPO). Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
