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eBay Crashes Despite Q3 Beat: Buy the Dip via ETFs

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E-commerce giant eBay Inc (EBAY - Free Report) came up with Q3 results after the closing bell on October 19 and shares plunged 8% after hours although the company beat on both lines. As per the company, non-GAAP earnings from continuing operations were $0.45 per share in Q3 (excluding stock-based compensation expenses), up 5% year over year.

As per Zacks, adjusted earnings including stock-based compensation expenses were $0.38 per share, above the Zacks Consensus Estimate of $0.36 per share. Net revenue rose 6% year over year to $2.217 billion and beat the consensus estimate of $2.182 billion (read: 3 Sector ETFs with Revenue Growth Potential).

Net transaction revenues showed a gradual improving trend in the Marketplace segment, with an expansion of 2% year over year in the quarter. The space exhibited a steady improvement over the past few quarters. StubHub’s net transaction revenues also witnessed a substantial 31% year-over-year expansion rate in Q3.

Though the mood was optimistic prior to the earnings report, as evident by an about 2.8% stock price gain on October 19, subdued Q4 guidance ruined the party.

Inside the Weak Guidance

For the upcoming quarter, which embraces the key holiday season, eBay forecast adjusted revenue of $2.36 billion to $2.41 billion and earnings from continuing operations of $0.52 to $0.54 per share. Analysts on average were expecting revenue of $2.40 billion and earnings of $0.54 per share.

Why Should You Play eBay ETFs?

Investors should note that the company’s streamlining initiatives and strategy to spin off the PayPal business (almost a year ago) seems to be slowly bearing fruit, though it will still take some time to come fully on track.

Also, the company keeps eyeing acquisition “in the areas of geographic and vertical expansion.” The company’s share buyback activity can be an eye-catching point too as it returned $2 billion of capital to shareholders so far this year via repurchases. The stock has a Zacks Rank #3 (Hold) at the time of writing.

So, gutsy investors may use this dip as an entry point to eBay. Another big reason is that the company’s Zacks industry rank is in the top 13%. Some of the top companies in the field are Amazon.com Inc. (AMZN - Free Report) , Alibaba Group Holding Limited (BABA - Free Report) and Groupon Inc. (GRPN - Free Report) – each with a Zacks Rank #1 (Strong Buy).

Amazon in fact plans to boost its holiday season hiring by 20% year over year in the U.S., showing optimism over its business prospect. Thus, investors who are not hopeful on eBay for the near term can still play the below-mentioned ETFs to gain exposure to the broader sector (read: ETF Strategies for Q4).

PowerShares Nasdaq Internet Portfolio (PNQI - Free Report)

This fund gives investors exposure to the broad Internet industry. The fund holds about 84 stocks in its basket while charging 60 bps in fees per year (read: Buy These ETFs on Netflix Blowout Q3 Earnings).

The in-focus eBay occupies the tenth position with 3.82% allocation while Amazon takes the top position with about 8.26%. In terms of industrial exposure, Internet software and services make up for 60% of the basket, followed by Internet retail.

First Trust Dow Jones Internet Index ((FDN - Free Report) )

This is one of the most popular and liquid ETFs in the broad technology space. The fund charges 54 bps in fees per year. In total, the fund holds 42 stocks in its basket with the in-focus eBay taking the ninth spot with 4.00% share. Amazon has a weight of 10.36% in the fund. From a sector look, information technology accounts for about 70% of the portfolio while consumer discretionary makes up 22%.

Amplify Online Retail ETF (IBUY - Free Report)

This 49-stock ETF comprises stocks that are into online retailing. eBay takes the fifth spot in the fund and accounts for about 3.78% of the product. Netflix and Amazon have 3.73% and 3.18% exposure, respectively (read: Retail Sales Recover in September: ETF & Stock Winners).

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