eBay Inc. (EBAY) is set to report its fourth-quarter 2014 results on Jan 21. Last quarter, the company reported a positive earnings surprise of 1.75%. It is worth noting that eBay has outperformed the Zacks Consensus Estimate in two of the four preceding quarters with an average positive earnings surprise of 0.45%.
Let us see how things are shaping up for this announcement.
Factors at Play this Quarter
eBay’s third-quarter results saw its top line missing the Zacks Consensus Estimate. Revenues from the Payments segment grew 20.4% year over year, the only unit reflecting notable growth.
Going forward, eBay's main concern is the competitive pressure on both its marketplace and payment businesses. On the marketplace front, the company faces strong competition from Amazon, Google and offline retailers that are making their way online.
The marketplaces business has become all-important since eBay will soon be spinning off PayPal. eBay has already taken necessary measures to strengthen the marketplaces business, beginning with the fixed price format, moving on to wooing big sellers and customers, improving the technology and navigation of its properties, investing in better fulfillment services and specially focusing on mobile customers. Its drive to provide complete online solutions for traditional retailers should further add to this growth.
On the payment front, the revival of Apple Pay and Google Wallet, and the impending entry of Alipay into North America pose concerns.
However, the company needs to either pursue reinvestment, or reflect on a strategic review as its merchant relationship will be valuable to Alibaba, which is waiting to increase its presence in North America.
Management expects fourth-quarter 2014 revenue of $4.85-4.95 billion (up 12.6% sequentially and 8.2% year over year at the mid-point), which was short of consensus expectations of $5.16 billion. The company expects to generate a GAAP EPS of 73 to 76 cents and a non GAAP EPS of 88 to 91 cents. The EPS guidance is better than the Zacks Consensus Estimate of 81 cents, but management excludes stock based compensation from calculations that is not considered by Zacks.
Earnings Whispers?
Our proven model does not conclusively show that eBay will beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.
Zacks ESP: eBay has an Earnings ESP of 0.00%. This is because the Most Accurate estimate and the Zacks Consensus Estimate are both pegged at 78 cents.
Zacks Rank: eBay has aZacks Rank #4 (Sell). We caution particularly against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Here are some companies which you may consider instead, as our model shows they have the right combination of elements to post an earnings beat this quarter:
Ellie Mae, Inc. (ELLI) has an Earnings ESP of +40.00% and a Zacks Rank #1
Apple Inc. (AAPL) has an Earnings ESP of +0.78% and a Zacks Rank #2
Hutchinson Technology Inc. (HTCH) has an Earnings ESP of +7.69% and a Zacks Rank #2
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