Shares of online auction website eBay (EBAY) got off to a poor start Thursday after third-quarter results did little to inspire investors. While eBay’s earnings of 68 cents per share in the third quarter beat analyst expectations by a penny, revenue came in a little light.
But that wasn’t the worst part. As investors, we buy the future, not the past, so expectations and projections matter a great deal when it comes to picking the right stock. Unfortunately for EBAY shareholders, its fourth-quarter guidance was absolutely atrocious.
Wall Street was looking for revenue around $5.16 billion and EPS of 91 cents in the holiday quarter. Ebay projected sales in the range of $4.85 billion and $4.95 billion and EPS between 88 cents and 91 cents in the quarter.
A sudden change in the Google (GOOG) search algorithm has eBay scrambling to ramp up search engine optimization efforts in the fourth quarter, and cautious consumers wary of data breaches are less eager to spend, the company said.
You can see why the EBAY stock price is falling off a cliff today.
It’s a much darker day than it was just a few weeks ago, when EBAY stock briefly caught fire on the news that it would spin off in-house payment processing superstar PayPal in 2015. The billionaire activist investor and famed corporate raider Carl Icahn had been pushing EBAY’s board for a PayPal spinoff since earlier this year, but to no avail.
When the company caved and agreed to spin off PayPal on Sept. 30, shares of the online auctioneer jumped 7.5%, and Icahn was a happy man. He has since moved on to harassing Apple (AAPL) CEO Tim Cook about the company’s massive cash pile, encouraging the tech guru to use the $133 billion in the bank on a massive stock buyback via a tender offer. Icahn also suggested AAPL stock is worth more than twice what it trades for today.
Although Icahn got his way with the eBay-PayPal spinoff, EBAY stock hasn’t retained the initial gains it enjoyed just after the announcement. In fact, the price of EBAY stock is off about 18% from its $56.99 Sept. 30 highs.
Unfortunately, the PayPal spinoff isn’t as beneficial for the stock as some might’ve hoped. In fact, many investors are waiting to either buy a piece of the new independent PayPal or sell shares of the stripped-down eBay when the two segments diverge next year.
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As of this writing John Divine owns shares of AAPL stock, GOOG stock, and GOOGL stock. You can follow him on Twitter at @divinebizkid.