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Is a Surprise in Store for eBay (EBAY) this Earnings Season?

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eBay Inc. (EBAY - Free Report) will report  second-quarter 2017 earnings on Jul 20 after the bell.

The company has a Zacks Rank #3 (Hold) and an Earnings ESP of 0.00%, a combination that makes surprise prediction difficult. This is because, per our proven model, a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 to beat estimates. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

eBay Inc. Price and EPS Surprise

We don’t recommend Sell-rated stocks (Zacks Rank #4 or #5) going into the earnings announcement.

eBay’s surprise history has been decent as the company beat estimates in two of the last four quarters and matched estimates on one occasion.

Over the last one year, however, the stock has underperformed the Zacks Internet - Commerce industry. It gained roughly 40% compared with the industry’s gain of 51.5%.

Let’s see how things are shaping up for this announcement

Recap of the First Quarter Performance

eBay’s first-quarter earnings and revenues came ahead of the Zacks Consensus Estimate. Revenues were up 3.7% year over year.

Revenue growth was driven by strength in international markets, growth of active buyers, integration of the Ticketbis acquisition, expansion of new user experience and brand advertising. eBay added 2 million active buyers in the first quarter taking the total to 169 million.

What We Are Watching?

eBay is currently replatforming itself and sees significant progress on this front. The company accelerated its efforts by building product catalogs on structured data, enhancing mobile platform, rolling out new browse inspired shopping journeys, rejuvenating customer-to-customer (C2C) business and strengthening its brand.

Apart from structured data and enhancing mobile experience, application of artificial intelligence, increased use of social media to drive traffic, category merchandising, and an easier listing process are  positives. The company’s recent deal with Flipkart is expected to increase penetration in India.

However, concerns remain in the form of increasing competition in the e-commerce and hardline retail market from companies like Amazon (AMZN - Free Report) and Wal-Mart and deceleration of growth in the e-commerce market both domestically and internationally.

eBay’s increased investment toward overall platform technology and slower growth rate compared to its peers are also overhangs. Furthermore, eBay’s growth continues to suffer due to a weak world economy. The company is heavily dependent on countries outside the U.S for its transaction and Internet sales. Although the U.S. is flourishing, emerging economies are slowing down.

Summing Up

eBay’s unique capabilities backed by technological improvements give it an edge over its competitors. We remain positive about eBay’s replatforming and brand enhancement initiatives, the pace of building a solid foundation of structured data and artificial intelligence, increasing personalizing capacities and improving mobile experience. However expected results may take some time to show up due to weak global economy, slow e-commerce growth and increasing competition.

Stocks That Warrant a Look

Here are a couple of stocks that you may want to consider as our model shows these have the right combination of elements to post a positive earnings surprise:

Cypress Semiconductor Corporation (CY - Free Report) , with an Earnings ESP of +11.11% and Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Lam Research Corporation (LRCX - Free Report) , with an Earnings ESP of +1.33% and a Zacks Rank #1.

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