eBay Shares Need One Heckuva Beat

Analysts expect the online auctioneer to beat estimates again, but that may not be enough to lift the stock.
Publish date:



(EBAY) - Get Report

is expected to top its second-quarter guidance but probably won't bowl anyone over unless it can show significant growth in the value of products sold on the site.

"We believe a beat and modest-raise quarter is anticipated as sentiment has improved over the last couple of weeks, but we continue to believe that gross merchandise volume growth is the most important metric as we look for signs of stabilization and reacceleration in core business and evidence that buyer demand is improving, or at least not worsening," wrote analyst Douglas Anmuth of Lehman Brothers in his most recent note.

Anmuth expects the total value of all successfully closed listings between users on eBay's online trading platforms to grow by only 10% in the second quarter, a drop from 12% in the previous quarter. And although he noted that eBay has beaten estimates and raised full-year guidance virtually every quarter for the last four years, it may not be enough.

As evidence, he pointed to eBay's past five quarters, where the online auction site beat the average consensus estimate by 11% but still saw its shares fall by an average of 4% the day after reporting results.

Estimates and company guidance have typically been driven by such factors as favorable foreign exchange, share buybacks and lower tax rates, something that investors have become wise to, which might explain their disappointment even when eBay hits or exceeds expectations.

"We believe these lower-quality factors are increasingly being backed out by investors, who are more focused on organic revenue growth and gross merchandise volume growth," Anmuth wrote.

For the second quarter, eBay expects earnings in the range of 39 cents and 41 cents on revenue in the range of $2.1 billion and $2.15 billion. Analysts surveyed by Thomson Reuters predict earnings of 41 cents on revenue of $2.17 billion.

For the year, the company offered earnings guidance in the range of $1.70 and $1.75 on revenue in the range of $8.7 billion and $9 billion. Analysts predict earnings of $1.74 on revenue of $9.01 billion.

eBay has seen a number of changes in recent months, including a new chief executive, John Donahoe, who took over the company on March 31. It has also implemented a new fee structure that charges sellers less to list their items but more if they close the deal.

Other changes include a ranking system that takes into account a seller's rating as assessed by buyer feedback. Sellers are also no longer allowed to leave feedback on buyers, although buyers can still comment on sellers.

Jeffrey Lindsay, an analyst at Sanford Bernstein, said up until recently, eBay had not been paying much attention to problems on its site such as seller fraud and poor customer service, and also had a hard time keeping up with its main rival,


(AMZN) - Get Report


"The new management team seems to be getting to grips with these problems for the first time and has already instigated a major restructuring of fees to reduce up-front listing charges -- encouraging more listings overall but for many popular categories of goods actually increasing fees overall -- we estimate by up to 7%," he wrote in his most recent report.

Although sellers may have been angered by eBay's fee changes -- as demonstrated by a boycott staged in February -- it doesn't seem to have much of an impact, at least not yet.

"Despite their seller strike in February, the fee change at eBay is neutral overall, as listings in the second quarter are actually 17% higher than they were during the same period last year," Lindsay noted. "This leads us to believe that eBay is on track to report a strong quarter."

Mark Mahaney, an analyst for Citigroup, also expects eBay to beat estimates and raise its full-year guidance. Although high fuel prices and concerns about the economy have had a negative impact on online retail in general, eBay may feel a somewhat muted effect since a lot of its audience consists of value shoppers.

At the same time, he expects management's comments on full-year guidance to be conservative because of the economic outlook and changes in eBay's marketplace segment.

Mahaney further noted that eBay's shares are down 13% since it reported first-quarter results, and 19% year to date.

"Our interpretation is that the market is likely assuming another slight Beat & Raise quarter," he wrote. "The issue will be whether a Beat & Raise is enough of a catalyst to get the shares to move up from here."