eBay Inc. (EBAY) is scheduled to announce its second quarter fiscal 2012 results on July 18, and we notice a single upward movement in analyst estimates.
eBay’s first quarter 2012 earnings per share (EPS) of 48 cents (excluding one-time items and stock-based compensation) beat the Zacks Consensus Estimate by 5 cents on strong top-line growth, the strengthening Marketplaces segment and solid payments business.
The company reported gross revenue of $3.28 billion, down 3.0% sequentially but better than the Consensus expectation of $3.15 billion and its own guidance range of $3.05–3.15 billion, aided by improved customer experience. Over 86% of eBay’s total revenue was transactions-based, while the remaining 14% came from marketing services.
The pro forma gross margin was 70.6%, up 66 bps sequentially and down 105 bps year over year. The sequential increase was due to lower transaction expense, partially offset by a slightly higher transaction loss rate.
Second Quarter Guidance
eBay expects revenue of $3.25–3.35 billion (flat sequentially and up 19.6% year over year at the mid-point), GAAP EPS of 49 cents to 51 cents and non GAAP EPS of 53 cents to 55 cents. The Zacks Consensus Estimate is pegged at 48 cents.
For 2012, management expects revenue of $13.8–$14.1 billion, GAAP EPS of $1.91 to $1.96 and non GAAP EPS of $2.30 to $2.35. The Zacks Consensus Estimate is pegged at $2.05.
Detailed earnings results can be viewed here: Turnaround Story Continues at eBay
Agreement of Analysts
Only one out of the 17 analysts providing estimates made an upward revision for the second quarter as well as fiscal 2012 in the last 30 days.
The majority of analysts expect a decent second quarter with earnings per share coming in line with the Street Consensus at 55 cents. They believe that strong eCommerce trends in the U.S. will likely be offset by macro weakness in Europe and lower cross-border trade activity due to weak euro currencies.
Hence, the analysts do not expect any upside to the full-year guidance. However, they see continued traction in eBay’s Marketplaces business and continued online and offline share gains in the PayPal segment.
The majority of the analysts expect PayPal to continue to drive growth for eBay. They believe that PayPal is expanding its market opportunity by aggressively enabling mobile payments and expanding Point-of-Sale (:POS) offerings. According to management, PayPal expects to process $7 billion in mobile payments this year.
The analysts believe that the company’s recent partnership with VeriFone and Equinox, which are the #1 and #3 POS terminal providers, will lead to long-term upside potential in offline POS transactions and also pave the way for broad adoption by retailers.
However, a handful of analysts remain concerned about the relative weakness in merchant Services total payment value growth due to the continued negative impact of foreign currency and lack of recovery in the rate of cross border commerce in eBay’s market. They believe that lower cross-border trading activity, foreign exchange headwinds and weak gold prices could again impact eBay's U.S. gross merchandise volume growth.
Magnitude of Estimate Revisions
In the past 30 days, the Zacks Consensus Estimate increased a penny each to 48 cents and $2.05 for the second quarter as well as fiscal 2012, respectively.
Over the 90-day period, the Zacks Consensus Estimate was up by 2 cents for the second quarter and 8 cents for fiscal 2012.
We expect eBay to report another good quarter with potential upside from payments and remain impressed by its business strategy and execution.
We believe that eBay’s PayPal is well positioned for sustained growth and the Marketplaces business is also showing signs of improvement. Recently, the company expanded its offline partnerships and announced that PayPal POS was gaining traction as 15 national retailers had agreed to accept PayPal as a payment method. We believe that this would considerably increase PayPal’s addressable market going forward.
PayPal has also reinforced its mobile payments segment through the PayPal Mobile Express Checkout system and Zong acquisition, which are expected to boost mobile payment volumes.
However, we are concerned about the increasing competition from major online retailers, such as Amazon.com (AMZN), as well as many other smaller players. Additionally, Google Inc. (GOOG) has been eyeing the online payment space, threatening eBay’s position.
While eBay’s payments business shows great promise, here too competition may be expected to pick up as banks and other companies announce their own payment systems and Google’s digital wallet gathers steam.
Currently, eBay has a Zacks #3 Rank, implying a short-term Hold recommendation.
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