eBay beats Q1 estimates, issues poor Q2, FY17 view

The stock of e-commerce company Ebay Inc (NASDAQ: EBAY) plunged 8% last week to close at $32.16. Ironically, the stock was punished after the company posted fiscal 2017 first-quarter revenue and earnings that beat analysts’ expectations.

Analysts attribute the poor second-quarter and full-year 2017 EPS and revenue outlook for the decline in the share price. Additionally, there are a few more facts which indicate that the stock would remain in a bearish orbit as of now.

The San Jose, California-based company reported an $80 million increase in the fiscal 2017 first-quarter revenue to $2.217 billion, from $2.137 billion in the first-quarter of fiscal 2016.

The Q1 2017 GAAP income from continuing operations was $1.04 billion or $0.94 per share, compared with $482 million or $0.41 per share in Q1 2016.

eBay

Excluding stock-based compensation expenses, among others, the non-GAAP net income for the recent quarter was $538 million or $0.49 per share, up from $550 million or $0.47 per share in the first-quarter last year. s first quarter results exceeded Thomson Reuters consensus estimates of $0.48 per share on revenues of $2.21 billion.

The gross merchandise volume – reflecting the total value of goods sold on ebay’s platform – of $20.9 billion was greater than RBC Capital Markets’ estimates of $20.7 billion. Gross merchandise volume increased 2% y-o-y and 5% on a neutral currency basis. The company also stated that it has enrolled two million active buyers in the recent quarter. With that, eBay now has a total of 169 million buyers across its platforms. StubHub, eBay’s sports and concert ticketing platform, reported revenue of $210 million, up 18% y-o- y.

Despite the above discussed positive facts, the market was not impressed. The main reason is the 24.6% y-o-y decline in eBay’s operating margin. eBay faces severe competition from companies such as Wall Mart and Amazon. To maintain market share, the company had to spend more on marketing.

The company also issued soft second-quarter and fiscal 2017 earnings and revenue outlook. eBay anticipates second-quarter earnings of between $0.43 and $0.45 per share, with revenue in the range of $2.28 billion to $2.32 billion. The Wall Street analysts are expecting earnings of $0.47 per share on revenues of $2.32 billion.

For FY17, eBay expects earnings in the range of $1.98 to $2.03 per share. Analysts surveyed by Thomson Reuters expect earnings of $2.21 per share. The full-year 2017 revenue outlook of between $9.3 billion and $9.5 billion is also below the market’s expectation of $9.96 billion. Thus, fundamentally, we have a short-term bearish view of the stock.

Lackluster FY17 outlook aided a sell-off, resulting in a breakdown of the technical support at 33.50. The next major support exists at 30.40. The declining stochastic oscillator supports further downtrend in the stock. So, the stock is likely to remain bearish in the short-term.

To gain from the anticipated downtrend, a put option can be purchased when the stock trades at about $32.40. Selecting a date around May 3 rd as the contract expiry date would also benefit the trader.

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