eBay Inc. (EBAY) is set to report second-quarter 2014 results on Jul 16. Last quarter, it posted a 1.75% positive surprise. Let's see how things are shaping up for this announcement.
Growth Factors This Past Quarter
eBay posted solid first quarter 2014 results with the bottom line beating the Zacks Consensus Estimate. Its gross revenue was down 5.9% sequentially but up 13.7% year over year. A large portion of the total revenue (86%) came from transactions, while the remaining was generated from marketing services. Both categories grew double-digits year over year but declined sequentially due to negative seasonality.
Its digital payment arm PayPal’s penetration on eBay grew from 51% to 53%. PayPal is taking all the necessary measures for continued growth in the mobile segment. It is also pushing beyond the online payments segment to stores, restaurants and other businesses. Therefore, the continuous enhancement of the mobile shopping experience and rapid consumer adoption will contribute to higher sales.
While eBay’s marketplaces business is back on track and the payments business is well ahead of the competition, execution remains something to watch out for. Moreover, competing mobile payment systems from Amazon.com (AMZN) and Google (GOOGL) remain a major headwind.
eBay’s acquisition of machine translation technology from AppTek will support its efforts to pursue its cross-border strategy. Moreover, it will enable the company to broaden its customer base, expand into new markets worldwide and boost its top- and bottom-line performances.
For the second quarter, eBay expects revenue of $4.325-4.425 billion (up 2.7% sequentially and 12.8% year over year at the mid-point). The Zacks Consensus Estimate is pegged at $4.40 billion. The company expects to generate GAAP EPS of 51 to 53 cents and a non GAAP EPS of 67 to 69 cents. The Zacks Consensus Estimate is currently 58 cents, below the guided range.
The company beat estimates in two of the last four quarters, albeit at a narrow margin. So its surprise history is not really indicative of future trends.
Moreover, our proven model does not conclusively show that eBay will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. But in this case, the stock has an ESP of -1.72% and carries a Zacks Rank #4 (Sell).
We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum. In this case, eBay has witnessed 6 downward revisions over the past two months and no upward revision.
Other Stocks to Consider
Here are some other companies, which you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:
- Silicon Motion Technology Corp. (SIMO), with Earnings ESP of +33.33% and a Zacks Rank #1 (Strong Buy)
- NVIDIA Corp. (NVDA), with Earnings ESP of +31.58% and a Zacks Rank #1
- PetMed Express, Inc. (PETS), with Earnings ESP of +4.00% and a Zacks Rank #2 (Buy)
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