Wednesday, January 13, 2010

eBay Inc. (NASDAQ: EBAY): Q4 Earnings Preview 2009

eBay Inc. (NASDAQ: EBAY) is scheduled to release financial results for fourth quarter after the market close on Wednesday, January 20, 2010. Analysts, on average, expect the company to report earnings of 40 cents a share on revenue of $2.28 billion. In the year ago quarter, the company reported earnings of 41 cents per share on revenue of $2.04 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.

In October, the San Jose, California based company reported that its third quarter net income declined to $350 million or $0.27 per share, compared to $492 million or $0.38 per share, in the comparable quarter last year. Non-GAAP net income for the quarter was $502 million or $0.38 per share, compared to $592 million or $0.46 per share, in year-ago period. Quarterly revenue rose to $2.2 billion from $2.1 billion in the same period last year. Analysts, on average, expected the company to report earnings of $0.37 per share on revenue of $2.14 billion.

On an FX neutral basis, fixed price gross merchandise volume or GMV excluding vehicles grew 37% or 17% excluding G-market.

For the fourth-quarter 2009, eBay expects GAAP earnings per share in the range of $0.28 to $0.30 and non-GAAP earnings per share in the range of $0.38 to $0.40. Net revenue is forecast in the range of $2.20 billion to $2.30 billion.

In November, the online retailer announced the successful completion of the sale of its Skype communications unit in a deal valuing the business at $2.75 billion. The buyer, who will control about 70% stake, is an investor group led by Silver Lake and includes Joltid Limited and certain affiliated parties, the Canada Pension Plan Investment Board and Andreessen Horowitz. eBay received about $1.9 billion in cash and a note from the buyer in the principal amount of $125 million. The company retained an around 30% equity investment in Skype. The company also purchased senior debt securities with a face value of $50 million as part of Skype debt financing.

The 2009 online holiday shopping season was a positive one as growth rate surpassed analyst estimates. According to comScore, consumer spending online rose 4% compared to last year, with shoppers spending $29.1 billion at online retail sites in November and December. In 2008, online sales as tracked by comScore fell 3 percent. For eBay, the biggest shopping day of the year—with more than 2.3M transactions in the U.S.—was Sunday, December 13th. Similarly, Paypal, a subsidiary of the company, reported a double digit growth in online sales or total payment volume on Cyber Monday. Black Friday 2009 total payment volume jumped 20% from the year before. Similarly, on Thanksgiving Day 2009, total payment volume surged by 25% year-over-year compared to Thanksgiving Day 2008.

The company is also benefiting from a growth in mobile commerce in the United States. Mobile shopping at eBay tripled year-on-year this holiday season. According to figures released by eBay, said 1.5 million items were bought worldwide via eBay mobile applications this holiday season. During 2009, eBay buyers and sellers have generated over US$500 million of transactions using mobile devices.

Though, it appears that eBay's turnaround efforts have started to pay off, the firm still faces an uphill climb. Despite eBay's vast potential, Amazon (NASDAQ: AMZN) dominates the e-commerce space continues to grow from strength to strength. Apart from Amazon, eBay also faces heightened competition from new entrants like Google (NASDAQ: GOOG), which may leverage its operations to create compelling alternatives to eBay's current model.

The company's stock currently trades at a forward P/E (fye 31-Dec-10) of 14.38 and PEG ratio (5 yr expected) of 1.20. In terms of stock performance, eBay shares have gained 25 percent over the past year.

Full Disclosure: Long AMZN.
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