eBay earnings preview: why further upside may be limited

When will eBay report their Q2 results?

Looking forward eBay is set to report their second-quarter (Q2) results this Tuesday, 28 July.

eBay share price rises on a wall of worries

Companies such as eBay (EBAY) and a variety of other online-focused companies have seen their share prices run higher in recent months, as the coronavirus sees the adoption of ecommerce accelerate. Indeed, from the lows eBay recorded in March, the stock has risen a staggering 111%, to last trade at US$55.12 per share. Even so, eBay still continues to trade at a significant discount to some of its ecommerce peers.

These pronounced share price moves come after the company significantly upgraded its top and bottom-line Q2 growth estimates, as well as its volume estimates, in June. Specifically, in a release described as a ‘one time update’, eBay said it now expected second quarter revenues to come in at between US$2.75-2.80 billion – implying a growth rate of between 13-16%. For reference, the company previously guided for Q2 revenues of between US$2.38-2.48 billion.

On the bottom-line, eBay’s management said they now expected the company to report Q2 non-GAAP earnings per share (EPS) of between US$1.02-1.06 – implying a growth rate of between 54-60%. The company had previously guided for earnings of between US$0.73-0.80 per share.

During that release eBay said it would provide an update on its full-year (FY) guidance as part of the Q2.

Other bits and pieces

Elsewhere, the company recently sold its classifieds business to global online classifieds specialist, Adevinta – in a deal valued at US$9.2 billion. The deal, under which eBay will receive US$2.5 billion in cash as well as a 44% equity stake and a 33.3% voting stake in Adevinta, is set to be finalised by the first quarter of 2021.

Speaking of that deal, eBay’s CEO, Jamie Iannone, said:

‘eBay believes strongly in the power of community and connections between people, which has been essential to our classifieds businesses globally. This sale creates short-term and long-term value for shareholders and customers, while allowing us to participate in the future potential of the classifieds business.’

Analysts bullish, but is the stock fully priced?

Interestingly, while the Street remains bullish on the stock, with EBAY commanding an Overweight rating on average, the average analyst price target of US$57.44 per share, according to MarketWatch, may suggest that the stock is fully priced. At the very least, that price target implies scant potential upside from current price levels.

In saying that, market expectations around eBay's prospects continue to lag its peers, with the stock last trading on a price-to-earnings multiple of 9.14x. Some of eBay's competitors, such as Amazon and Etsy, trade on significantly higher earnings multiples, at 143.73x and 162.79x, respectively.

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