Imagine hitting middle age at the tender age of 10. Some investors in
think that is what's happening to the e-commerce giant, but eBay would like to think otherwise. eBay may be maturing, but it's determined to fight any symptoms of decrepitude.
Can eBay keep a youthful spring in its step? The latest signs will be evident when the company posts results of its latest exam on Wednesday afternoon.
Analysts are expecting eBay to have earnings of 18 cents a share, up from 14 cents in the same quarter a year ago. Revenue is expected to rise 34.7% to $1.04 billion. That would be below the 36.5% growth rate for the first quarter, and the third straight quarter of slower revenue growth.
Here's a scorecard of some of the things Wall Street will be watching for in eBay's numbers and its conference call:
Growth rates in the U.S. and German markets and plans to boost them. After years of being wowed by eBay's growth in the U.S., investors have been disappointed in the past two quarters with slowing growth in eBay's core market, coupled with what they regard as high operating costs. eBay has vowed to extract new growth in the U.S., and the quarter will show how those efforts are bearing fruit.In Germany, sellers and buyers alike took to eBay's marketplace so quickly and fervently that the market, eBay's second largest after the U.S., quickly matured into a phase of slower growth. eBay has struggled to revive growth in Germany, and investors will be watching closely for progress. Some of the more bearish analysts are not holding out hope for good news. "We expect second-quarter results to reveal additional signs of degradation in the underlying metrics of eBay's business -- an issue we have been focused on for several quarters," says Derek Brown, an analyst at Pacific Growth Equities, which has no underwriting relationship with eBay. "We believe these signs of 'platform fatigue' are most prevalent in the company's more mature (and sizable) markets, namely the U.S. and Germany."
Growth in other European markets, which could offset slower German growth. Early listings data in the second quarter hinted that eBay is seeing strong growth in Italy and the U.K. If that trend held up, and if the growth is strong enough to boost the overall marketplace business, Europe could again become a bright spot for eBay.Overall, eBay's listings data seem to indicate two strong months in April and May, with an expected seasonal decline in June. One question is how many marketing dollars eBay spent in April and May to lure buyers and sellers to its site. If the marketing push lifted revenue but drove up operating costs, investors won't be happy. "During the second quarter, our analysis suggests the company hosted 439 million listings (vs. our 437 million estimate), with very healthy gains in the first two months, followed by decelerating listings growth through June," wrote Deutsche Bank Securities' Jeetil Patel in a research report. "Moreover, the company aggressively stepped up its marketing and advertising spending in May as a means of building demand, which could potentially impact marketing expenses," said Patel, whose firm has done investment banking or financial advisory services for eBay in the past year.
Return on investment in China. Earlier this year, eBay ruffled investors when it said it would spend $300 million this year, in part to strengthen its hand in China's nascent e-commerce market. While it's too early to expect a substantial return on either, eBay is expected to report on whether and when its China initiatives will start to contribute to its bottom line.
Return on investment in PayPal. Some of that $300 million is also going into eBay's other potential area for growth, its online-payment system. Though eBay faces a thicket of challenges to make the service as common as credit cards -- regulatory mazes in each country it expands into, competing against credit card issuers without alienating them, complaints from users who have had problems with the system -- PayPal has the potential to be as big as eBay's marketplace business, if not bigger.
"There could be upside to our revenue estimate due to greater PayPal integration/penetration in the U.S. and the U.K. and adoption in the newly launched countries," says Robert Peck, an analyst at Bear Stearns, which has no underwriting relationship with eBay.
Plans to integrate acquisitions and other recent investments. eBay bought Shopping.com for $620 million in an effort to expose its sellers to a broader audience of online shoppers. Again, it's too early to expect immediate benefits from the integration, but the hope is that eBay will offer a progress report on the benefits it expects from the deal.
Similarly, eBay's investments in
offer the company segues into the market for selling online services and not just goods. eBay launched a Craig's List-like site called Kijiji in several countries, so the conference call may offer insight into its success and eBay's plans to build out more classifieds sites.