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eBay turns bullish on beating Q3 estimates

eBayA short position in the form of a one touch put option was suggested in eBay Inc. (NASDAQ: EBAY) on September 13, with a target price greater than 29. The recommendation was given when the stock was trading at about $32.50. The stock hit a low of about $28.50, following the release of fiscal 2016 third-quarter results on Wednesday last week.

Ironically, the third-quarter earnings were above the Wall Street estimates. The soft Q4 outlook coupled with marginally lower than the estimated gross merchandise volume triggered the sell-off in the stock. However, for the reasons given below, we have a bullish view of the stock. The stock of eBay closed Monday’s trading session at $29.22.

The San Jose, California-based company reported third-quarter income from continuing operations of $418 million or $0.36 per share on revenues of $2.217 billion. In the corresponding period of 2015, the eBay recorded net income from continuing operations of $545 million or $0.45 per share on revenues of $2.099 billion.

Excluding charges, on a non-GAAP basis, the Q3 2016 income from the continuing operations is $509 million, down 4% from the $529 million in the Q3 2015. However, on a per share basis, the third-quarter earnings of $0.45 per share were not only higher than the $0.43 per share posted in the third-quarter last year, but also surpassed the Zacks estimates of $0.44 per share.

For the Q4 2016, the company anticipates earnings of between $0.52 and $0.54 per share and revenues in the range of $2.36 billion to $2.41 billion. The analysts currently expect earnings of $0.54 per share on revenues of $2.4 billion.

The Q4 outlook may look unimpressive. However, it should be noted that the forecast is higher than the Q4 2015 earnings of $0.50 per share and revenues of $2.322 billion.

For the third-quarter ended September 2016, eBay reported total gross merchandise volume (GMV) of $20.1 billion. It was below the analysts GMV expectation of $20.3 billion. However, it should be noted that StubHub, the sports and concert ticket platform, recorded a 32% growth in revenue to $263 million. The StubHub platform also posted a 23% y-o-y increase in the GMV to $1.1 billion.

The Marketplace platform reported revenue of $1.8 billion and GMV of $19 billion. At the end of the quarter, the company had 165 million active buyers, which is 1 million more than the earlier quarter.

After spinning off PayPal last year, eBay continues to concentrate and improve its core Marketplace business. The company has expanded the fixed-price merchandise business such that it offsets the revenue decline in the auctions section. eBay has also invested considerable time and money to improve the search engine optimization, thereby increasing the visibility of the website. Thus, we suggest taking long position at support levels considering the efforts put forth by the company to increase the top line and bottom line.

The stock was consolidating at 31 levels for the past two months. The stock also has a strong support in the form of moving average at 31.10. The rising stochastic oscillator indicates bullishness in the scrip. Thus, we can anticipate the stock to rise further.

eBay stock price: October 25th 2016

eBay stock price: October 25th 2016

With a one touch call option having a target price of $31 or lower, a binary trader can hope to gain from the imminent rise in the price of the stock. However, to improve the probability of success in the binary options trade, the call option should remain valid for a minimum of one month from the date of purchase.


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