eBay (EBAY) Gears Up for Q2 Earnings: What’s in the Cards?

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eBay - eBay (EBAY) Gears Up for Q2 Earnings: What’s in the Cards?

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eBay (NASDAQ:EBAY) is scheduled to report second-quarter 2018 earnings on Jul 18, after the bell.

In first-quarter 2018, earnings of 53 cents per share were in line with the Zacks Consensus Estimate. Gross revenues of $2.58 billion jumped 12% year over year (up 7% on an Fx-neutral basis) and were within the guided range of $2.57-$2.61 billion.

We expect eBay to perform well on the back of strength in its marketplaces active users and net transaction revenues.

Shares of eBay have gained 1.5% in the past 12 months, significantly underperforming the industry‘s 44.4% rally.

eBay (EBAY) Gears Up for Q2 Earnings: What's in the Cards?

Marketplaces Active Buyers to Drive Growth

In the first quarter, eBay’s marketplaces active buyers increased 2% from the year-ago period, amounting to a total of 171 million. We expect significant additions in the to-be-reported quarter. The Zacks Consensus Estimate for this metric is currently pegged at 173 million.

eBay’s accelerated Artificial Intelligence (AI) efforts through personalization, image search technology and customer support are expected to strengthen the Marketplace platform.

Moreover, eBay has been giving more data to its marketplace sellers including price and restocking guidance, as well as more insight into inventory such as demand signals for the right products, price, and timing.

Core Platform Strength to Drive Net Transaction Revenues

In the first quarter, eBay’s total net transaction revenues were $2.02 billion. The figure is expected to increase in the to-be-reported quarter as eBay has been strengthening its core platform and improving user experience.

The company accelerated its efforts by building product catalogs on structured data, enhancing mobile platform, rolling out new browse-inspired shopping journeys, rejuvenating customer-to-customer (C2C) business and strengthening its brand.

The Zacks Consensus Estimate for net transaction revenues is currently pegged at $2.1 billion.

Overhangs Remain

Concerns remain in the form of increasing competition in the e-commerce from companies like Amazon.com Inc. (AMZN) and Wal-Mart (WMT), as well as deceleration of growth in the e-commerce market both domestically and internationally.

eBay’s increased investment toward overall platform technology and slower growth rate compared to peers are also overhangs. Moreover, eBay’s growth continues to suffer due to weak world economy. The company is heavily dependent on countries outside the United States for transaction and Internet sales. However, the United States is flourishing whereas emerging economies are slowing down.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP.

Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement, especially when the company is witnessing negative estimate revisions.

eBay has an Earnings ESP of +0.39% but a Zacks Rank #4 (Sell), which makes our surprise prediction difficult.

eBay Inc. Price and EPS Surprise

eBay (EBAY) Gears Up for Q2 Earnings: What's in the Cards?

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