With markets at all-time highs, we have entered earnings season. And one of the first notable companies to report its earnings is eBay (NASDAQ:EBAY). It is slated to announce its second-quarter results on Wednesday, July 17 after the market closes.Like the shares of many other tech companies, Ebay stock has been on fire. In 2019, eBay stock price has surged an impressive 43%. That is actually better than arch rival Amazon.com (NASDAQ:AMZN), which has gained about 34%.
Yet until this year Ebay stock had been a laggard. For the past five years, eBay stock price has risen by an average of only 9.2%, versus the average 44% gain of AMZN stock over the same period.
So what can we expect from eBay earnings? For the top line, analysts, on average, are calling for an increase of 2.6%, while their consensus earnings per share estimate is 62 cents per share, up from 53 cents in the same period last year.
But Ebay earnings may actually get overshadowed next week because on July 15 and July 16 Amazon.com will hold its mega sale, Prime Day. That will definitely suck up a lot of the attention of business-news media outlets and of investors.
Yet eBay will not sit idly by. The company has announced its “Crash Sale” program, which, according to eBay, is being held on July 15 in case Amazon’s website crashes, as it did during last year’s Prime Day. To this end, eBay has put together a new website called “The Brand Outlet,” which has plenty of items from top brands like Apple (NASDAQ:AAPL), Samsung, KitchenAid and Garmin (NASDAQ:GRMN) with discounts of as much as 70%.
According to eBay’s VP and COO of the Americas, Jay Hanson: “eBay is primed to deliver exactly what shoppers want during this year’s crash (sale). July has become a massive shopping season, and our summer sales include blockbuster deals that will not disappoint.”
The company has made other moves that have helped to boost Ebay stock. Here’s a look at some of them:
- Over the past year or so, eBay has been transforming its marketplaces to improve users’ experience. While the transition has been choppy, the long-term results should be positive. Keep in mind that buyers have indicated that the new system is better and will encourage them to buy more products on eBay.
- eBay has launched a digital- ad business, enabling it to more effectively monetize its users.
- In early March, eBay launched a strategic review. This was the result of pressure from activist investors Elliott Management Corp. and Starboard Value LP, which have both taken large stakes in eBay stock.
The firms now have two seats on eBay’s board between them. As part of the review, eBay will also explore other potential moves, including selling assets, such as the StubHub website and eBay Classifieds Group.
- eBay has announced that it plans to return $7 billion in capital back to the owners of eBay during the next two years. Given Ebay stock has a market cap of $34.6 billion, $7 billion is a sizable amount of money.
The Bottom Line on eBay Stock Price
Even after the rally of Ebay stock, its valuation is still reasonable, as its forward price-earnings ratio, based on analysts’ average estimate, is 13. By comparison, the forward PE ratios of Facebook (NASDAQ:FB) and AAPL are 22 and 16, respectively.
Granted, Ebay stock is still facing major risks. Its growth is uninspiring, as its gross merchandise volume fell 4% in Q1. And analysts don’t think GMV rebounded much in Q2. eBay also continues to have difficulties making inroads against Amazon.com.
But the good news is that the company appears to be serious about getting things on track and is focused on increasing the value of Ebay stock, as seen by its responses to the requests of Elliott Management Corp. and Starboard Value. And besides, expectations for eBay’s Q2 results are muted – and should be beatable.
Tom Taulli is the author of the upcoming book, Artificial Intelligence Basics: A Non-Technical Introduction. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.