Online auctioneer eBay ( EBAY) should continue its recent momentum when it reports quarterly results after the close of trading Thursday.
Rallying eBay back on the upswing
Many analysts who track the Internet auction house say there is a good chance the company will beat estimates of how many items are listed on the site, a key driver of revenue growth. And most say there is little worry that the company will budge from its much-discussed long-term targets of $3 billion in annual revenue and operations in 25 international markets by 2005. "We've done a lot of analysis of where listings are, and they are likely to meet or slightly beat estimates," says Shawn Milne, an analyst at Wit Soundview who estimates eBay will show about 87 million listed items in the quarter, compared with 79.4 million in the fourth quarter. Milne expects the company to report earnings of 8 cents a share on revenue of $149 million, figures that match the Thomson Financial/First Call consensus. This compares to earnings of 3 cents a share on revenue of $86 million in the same period last year. (Milne has a buy on eBay and his firm doesn't have a banking relationship with the company.) Following a surprise rate cut from the Fed, eBay shares ralled $4.45 to $47.50 Wednesday. Driving the company's growth are an aggressive plan to expand internationally and an effort to promote fixed-price sales. And what the company says in its earnings release and conference call Thursday about these two initiatives will be closely watched. Specifically, analysts hope the company will break out what proportion of gross merchandise sales, a figure that tracks the total value of goods exchanged on eBay, came from international markets. When the company announced its acquisition in February of France's iBazar, it specified for the first time how much international business contributes to gross merchandise sales -- about 8% in the fourth quarter. Analysts hope the company will continue to report the metric, and say it should approach 10% in the quarter, with the aim of reaching 50% within five years. When eBay reported earnings in January, the only real downer for analysts was a lack of information on how its fixed-price site, Half.com, was performing. The company and analysts have high hopes for this division, and specific information on how much traffic it is receiving and details on an expected expansion of the site will be welcomed by Wall Street. "We believe the much-anticipated expansion of Half.com is imminent," wrote W.R. Hambrecht analyst Derek Brown in a recent research note. "eBay has long maintained that the company's platform was easily extendible across a broad array of product categories -- theoretically, any standardized consumer product with a bar code." (Brown has a strong buy on the stock and his firm has no banking relationship with eBay.) While earnings and revenue will likely show strong gains, don't expect the amount of money eBay earns on each transaction to increase much. While the company instituted higher commission fees in the quarter, its business overseas, where fees are much lower, will dilute any gains from its U.S. business, analysts say. Thus, expect commissions to hold steady or rise only slightly from the fourth-quarter level of 7.6% of gross merchandise sales, says Milne, the analyst at Wit Soundview. Much of the hype around eBay centers on its ambition of being a global flea market with no analog in the bricks-and-mortar world -- unlike, say Amazon.com ( AMZN), which must compete with bookstore chains Barnes & Noble ( BKS) and Borders ( BGP). Accordingly, eBay has maintained much of its allure among investors amid the collapse of the Internet economy. Its shares are up over 40% since the beginning of the year, a stellar run during a time when investors fled technology stocks in droves. Don't expect that to change drastically because of what it says Thursday.