eBay's 4Q14 earnings: A mixed performance that keeps it afloat (Part 6 of 10)
eBay’s guidance for full year 2015
For full year 2015, eBay (EBAY) projects revenues of $18.6 billion to $19.1 billion, representing FX-neutral growth of 7% to 10%. Single-digit growth will be slightly disappointing since we’re used to seeing eBay’s revenue growth in the double digits.
eBay stated that currency headwinds will impact revenue by approximately $600 million or roughly 3% of growth since the US dollar has strengthened versus the euro, pound, and Australian dollar by 12%, 8%, and 10%, respectively.
eBay estimates non-GAAP (generally accepted accounting principles) EPS (earnings per share) of $3.05 to $3.15, up 3% to 7% versus 2014. Non-GAAP effective tax rate will be stable in the 19% to 20% range. The company expects to generate greater than $4 billion in free cash flow for the year with capex (capital expenditures) of 8% to 10% of revenues.
eBay’s revenue affected by stronger US dollar
eBay derives about 40% of its revenues from outside the United States. The United Kingdom’s pound, the euro, and the Australian dollar have all depreciated by about 7% against the US dollar since July 2014.
eBay is not alone. The stronger US dollar seems to have impacted the whole technology sector.
Last month, Microsoft (MSFT) announced its earnings. It mentioned that it expects a 4% hit to its revenue growth due to US dollar appreciation in the quarter ending March 2015.
In a recent Market Realist article, we saw that Apple (AAPL) reported its outlook for fiscal 2Q15. It mentioned that it expects its growth rate to be 5% lower due to the currency headwinds that it expects to face in the March quarter.
US dollar index has gained substantially since July
Market Realist published a series on Why emerging markets are crashing as the US dollar rises. In this series, we saw that the US dollar and US equities (SPY) strengthened in 2014. We also noted that the US dollar rose 7% since the Federal Reserve announced the tapering of its asset purchase program in 2013. As the chart above shows, the US dollar index has actually gained substantially since July of 2014.
ETFs such as the Dow Jones Internet Index Fund (FDN) have decent exposure to eBay. eBay makes up 5.3% of FDN. Investors can consider this ETF for diversified exposure to eBay.
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