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eBay Earnings: What to Look For

BOSTON ( TheStreet Ratings) -- EBay (EBAY), scheduled to report quarterly earnings after the market close today, will give an investors a look into the turnaround in its Marketplace segment.

Analysts expect eBay to report a profit of 48 cents a share, compared with 40 cents a year earlier. Revenue is estimated to improve to $2.9 billion from $2.25 billion, according to a poll of analysts by Thomson Reuters. The company has said revenue may total $2.85 billion to $2.95 billion, along with EPS of $0.46 to $0.47.

Investors will be looking for improvements at Marketplace, as the company has undergone structural and pricing changes. Auctions, once the claim to fame for eBay, now represent only 40% off all marketplace revenue, with fixed auctions now representing 60%. Collin Gillis of BGC is looking for $15.1 billion in gross merchandise volume, with 63% coming from fixed-price transactions.

Gillis also notes that while the number of items sold has increased of late, the average selling price has fallen, leading to a drag on overall growth. He expects changes "to increase exposure to higher average selling price items" and help reverse this trend.

EBay's recent strategy to target high volume inventory liquidators could also lead to further marketplace growth, Gillis notes, as these intitiatives should "resonate with a consumer that is still repariring their personal balance sheet."

And the major driver of growth for eBay over the past several quarters has been PayPal, the online transactions services unit which has shown no signs of slowing down. Justin Post of Bank of America's Merrill Lynch thinks PayPal should report another record quarter with expectations for $1.09 billion in revenue, and total payment volume of $29.5 billion.

Post, who has a "buy" rating and a price $40 target, says PayPal is worth at least $15 per share. Assuming GSI Commerce is worth $2/share (its acquisition price), and given the $5 in cash and expected payments from Microsoft, eBay's Marketplace division is trading at only 8 to 11.5 times EPS, or a current value of $11 per share. Post says Marketplace should command at least a multiple of 14, given the expected 8% to 9% growth rate in 2012.
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