Wednesday, July 20, 2011

eBay Inc. (NASDAQ: EBAY): Q2 Earnings Preview 2011

eBay Inc. (NASDAQ: EBAY) is scheduled to release its second-quarter earnings after the closing bell on Wednesday, July 20, 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 first quarter, the San Jose, California based company's net income was $475.9 million, or 36 cents per share, compared to $397.7 million, or 30 cents per share, in the prior-year quarter. On an adjusted basis, the company earned 47 cents a share in the first quarter. Revenue grew 16 percent to $2.55 billion from $2.20 billion in the same quarter last year.Analysts, on average, expected the company to report earnings of 46 cents per share on revenue of $2.48 billion..

At its last earnings call in April, eBay forecast second-quarter earnings of $0.36 to $0.37 per share and adjusted earnings of $0.45 to $0.46 per share, with net revenues of $2.550 billion to $2.650 billion.

The company also lifted its fiscal 2011 earnings outlook. For the full year 2011, the company said that it 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. Previously, the company expected earnings of $1.56 to $1.61 per share, adjusted earnings of $1.90 to $1.95 per share, and net revenues of $10.300 billion to $10.600 billion for 2011.

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 tried to increase activity on its marketplace by improving the buying experience for shoppers while providing incentives for sellers to list more items and offer free shipping. EBay has been trying to bolster by doing things like cutting upfront listing fees it charges sellers, revamping its home page and improving search. In 2010, eBay ran test promotions, offering lower-volume sellers free auction listings and a free "Buy it Now" button on each of those listings. Previously, these consumer, or non-store sellers, had to pay upfront listing fees. Those types of promotions drove "significant" increases in both new listers and listings, eBay said earlier this year.

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 100 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.

Meanwhile, the number of mobile phone users worldwide making payments for digital goods is forecast to increase 40% to 2.5 billion in 2015, from 1.8 billion in 2011. Recently, Paypal raised projections of mobile payments volume in 2011 to $3 billion from $2 billion.

The firms’s electronic payment service PayPal is also likely to benefit from new debit card rules. Last month, the Federal Reserve voted to cut fees retailers pay to accept debit-card payments. The Fed rule will shift billions of dollars in revenue from financial institutions to merchants. 

Meanwhile, eBay’s sale of Skype to Microsoft Corp. (NASDAQ: MSF) in May generated an additional $2.4 billion in cash that would open up new merger and acquisition options. According to the Wall Street Journal, the company may use the cash for acquisitions or share buybacks. Acquisitions are likely to target technologies and companies that increase eBay's mobile capabilities.

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