eBay Could Use Some Good News

This is a tough environment for a stock that needs a big-time spark.
Publish date:



(EBAY) - Get Report

attempts to win back the hearts and minds of its buyers and sellers may not see results anytime soon.

Investors might be waiting a while, too.

Last week, the online auction site said it would slash 1,600 jobs at the same time it announced that it would hit the lower end of its third-quarter revenue forecast of $2.1 billion to $2.15 billion.

While eBay also expects to beat its earnings forecast of 39 cents to 41 cents a share when it reports results Wednesday, that may not be enough to placate shareholders.

Citigroup analyst Mark Mahaney has noted that this will be the first time in five years that eBay hasn't come in above its midpoint revenue guidance. The job cuts also are unusual, representative of what Mahaney says are "the challenges the company is facing."

Indeed, eBay's stock has been taking a beating recently on concerns over its stagnant growth, as well as its inability to effectively compete against rival


(AMZN) - Get Report

using its auction-style marketplace for buyers and sellers.

Shares of eBay have plunged 56% from their 52-week high, and although the market has been brutal on tech stocks in recent weeks, investors seem particularly down on eBay.

The need to shake up the business isn't lost on Chief Executive John Donahoe, who has been increasingly shifting the site toward fixed-price selling and away from auctions. In August, he announced that eBay would cut fixed-price listing fees by 70% in an effort to draw more sellers to the site. The fee changes took effect on Sept. 16.

That move comes on top of a slew of other changes that the company has been putting in place all year. eBay said in January it would charge a smaller fee for sellers to list their items for auction, and instead raised the fee that sellers would have to pay to eBay if they made a sale.

But Morgan Stanley analyst David Joseph has questioned if those changes will really make a difference.

"We've been thinking that the end of the 3+ year turnaround would come soon enough, but recent trends tell us otherwise," he wrote in a recent research note.

Joseph said that seller checks show a greater deceleration in eBay's third-quarter global gross merchandise volume -- or the total value of items sold on the site -- than previously estimated, with the possibility of a year-over-year decline. He also predicted a challenging holiday season for eBay this year, which should come as no surprise given the current economic climate.

Foreign exchange, which had helped give eBay an 8% lift in gross merchandise volume in the second quarter, isn't expected to come to the rescue in the third quarter. In fact, Donahoe acknowledged last week in a conference call with analysts that a strengthening dollar has had an impact on revenue.

Joseph estimated a potential hit of $41 million -- or 2% of eBay's revenue -- in the third quarter, noting that 54% of the company's second-quarter revenue came from overseas.

He added, however, that eBay has time to put more cash flow toward offsetting those foreign exchange effects in the fourth quarter as well as next year.