Wednesday, April 27, 2011

eBay Inc. (NASDAQ: EBAY): Q1 Earnings Preview 2011

eBay Inc. (NASDAQ: EBAY) is scheduled to release its first-quarter earnings after the closing bell on Wednesday, April 27, 2011. Analysts, on average, expect the company to report earnings of 46 cents per share on revenue of $2.48 billion. In the year ago period, the company reported earnings of 42 cents per share on revenue of $2.20 billion.

eBay Inc. and its subsidiaries provide online marketplaces for the sale of goods and services, online payments services, and online communication offerings to individuals and businesses in the United States and internationally. It operates in three segments: Marketplaces, Payments, and Communications.

The company is also a leader in mobile commerce, with more than 30 million downloads of its mobile applications, and eBay mobile gross merchandise volume is expected to double to $4 billion in 2011. 

In the preceding fourth quarter, the San Jose, California based company's net income was  $559 million, or 42 cents per share, compared to $1.4 billion, or $1.02 per share, in the prior-year quarter. On an adjusted basis, the company earned 52 cents a share in the fourth quarter. Revenue grew 5 percent to $2.5 billion from $2.4 billion in the same quarter last year. Analysts, on average, expected the company to report earnings of 47 cents per share on revenue of $2.48 billion.

At its last earnings call in January, eBay forecast first-quarter earnings of 34 cents to 36 cents per share, earnings excluding one time items of 44 cents to 46 cents per share. Net revenues are anticipated in the range of $2.4 billion to $2.5 billion. 

For the full year 2011, the company expects earnings of $1.56 to $1.61 per share, adjusted earnings excluding items of $1.90 to $1.95 per share, and net revenues of $10.3 billion to $10.6 billion.

Ebay, which started as an online auction company, later added fixed-price items to its marketplace in order to position itself as a conventional online retailer. The fixed price format, while impacting margins negatively, is making the company more competitive and management’s focus on technological improvements will further improve customer satisfaction. EBay has been trying to bolster by doing things like cutting upfront listing fees it charges sellers, revamping its home page and improving search.

The company expects double-digit annual revenue and earnings growth for 2011-2013, due to continued strong global momentum in PayPal and eBay Marketplaces businesses. The company expects compound annual non-GAAP earnings growth of 10% to 14%. Total company revenues are expected to reach $13 billion to $15 billion in 2013, up from $9.2 billion in 2010, led by continued innovation in both of the company's core businesses. PayPal is expected to significantly increase revenue to $6 billion to $7 billion in 2013, driven by consumer preferences, market expansion, and innovation in the areas of mobile, digital, social and local. eBay Marketplaces business is expected to achieve revenues of $7 billion to $8 billion in 2013, due to technology-led innovation and tailored customer experiences that enable buyers and sellers to connect around the world.

PayPal continues to be the key focus of management's attention and the unit continues to work driven by the merchant services business. PayPal has done an effective job at leveraging its more than nine-million merchants and over 90 million active accounts, which are expected to grow to 130 million by 2013, increasing its penetration on eBay, adding merchants, integrating Bill Me Later, and expanding internationally, while warding off competitive threats, to-date. Last year, Ebay said that PayPal will set up an international e-commerce hub in Chongqing, China. PayPal is testing the service and hopes to offer it to merchants across China in the second half of 2011.The company said that PayPal will have more than 1 million merchants in Greater China, which includes Hong Kong and Taiwan, by the end of this year. China has the world’s largest online population with 440 million users.

Last month, the company agreed to acquire GSI Commerce, a leading provider of ecommerce and interactive marketing services, for $29.25 a share, or total consideration of approximately $2.4 billion. The acquisition, which will be financed with cash and debt, is expected to close in the third quarter of 2011. eBay expects the transaction to result in synergies of approximately $60 million by 2013; the company expects the transaction to be EPS neutral in 2011 and accretive in 2012. Recently Ebay also agreed to acquire additional shares in GittiGidiyor, an online auction site in Turkey. Upon closing of the transaction, eBay will own about 93 percent of the outstanding shares of GittiGidiyor. The deal follows eBay's acquisition of a minority stake in GittiGidiyor in 2007. 

The company's stock currently trades at a forward P/E (fye Dec 31, 2012) of 15.17 and PEG ratio (5 yr expected) of 1.75. In terms of stock performance, EBay shares have gained nearly 34 percent over the past year.

Full Disclosure: None.
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