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eBay (EBAY) Gears Up for Q4 Earnings: What's in the Cards?

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eBay (EBAY - Free Report) is set to report fourth-quarter 2018 results on Jan 29.

The company beat the Zacks Consensus Estimate in two out of the trailing four quarters, delivering average positive surprise of 1.44%.

In third-quarter 2018, earnings of 56 cents per share beat the Zacks Consensus Estimate by a penny. Gross revenues of $2.65 billion jumped 6% year over year (up 6% on an Fx-neutral basis) and beat the Zacks Consensus Estimate by 0.12%.

For the fourth quarter, eBay expects revenues to grow 4-5% on an Fx-neutral basis to $2.85-$2.89 billion and non-GAAP earnings between 67-69 cents per share.  

The Zacks Consensus Estimate for fourth-quarter earnings and revenues is pegged at 68 cents and $2.87 billion, respectively. We expect eBay to perform well on the back of strength in its marketplace’s active users and net transaction revenues.

Shares of eBay have lost 18.4% in the past year compared with the industry's decline of 10.7%.

Marketplace Active Buyers to Drive Growth

In the third quarter, eBay’s Marketplace active buyers increased 4% from the year-ago period to 177 million. We expect significant additions in the to-be-reported quarter as well. The Zacks Consensus Estimate for this metric is currently pegged at 178 million.

eBay’s accelerated Artificial Intelligence (AI) efforts through personalization, image search technology and customer support are expected to strengthen the Marketplace platform.

Moreover, the company has been giving more data to its marketplace sellers including price and restocking guidance, as well as more insight into inventory such as demand signals for the right products, price, and timing.

Notably, eBay offers a local feature, which allows a customer to buy something online and then pick it up at a local store when convenient. This lowers shipping costs and helps boost growth of the Marketplace business.

eBay Inc. Price and EPS Surprise

eBay Inc. Price and EPS Surprise | eBay Inc. Quote

Advertising & Payment Platform to Benefit eBay

eBay is progressing well with its payment and advertising business. The company plans to invest aggressively in this segment in the near term. Within the advertising segment, the company has witnessed robust growth in Promoting Listings.

Notably, in the last-reported quarter, 400,000 sellers promoted more than 160 million listings. This led to revenue growth of 120% and contributed 1% to transaction revenues.

Management expects Advertising portfolio to likely contribute $1 billion in annual revenues in the next few years, which is a tailwind.

Further, the company’s payment platform is gaining significant traction in the United States. Notably, it generated $38 million of gross merchandise volume (GMV) till the last reported quarter. Previously this money was put into PayPal but with the emergence of its own payment platform, eBay will be able to reinvest it and further its growth plans.

Robust GMV Growth to Benefit eBay

In the third quarter, Marketplace platform GMV grew 5% year over year on a reported basis and on an FX-Neutral basis to $21.5 billion, aided by continual expansion of new user experiences. The Zacks Consensus Estimate for the to-be-reported quarter is pegged at $23.84 billion.

StubHub contributed $1.2 billion of GMV, up 7% on a year-over-year basis. The Zacks Consensus Estimate for the quarter to be reported is pegged at $1.47 billion.

Core Platform Strength to Drive Net Transaction Revenues

In a bid to increase its total net transaction revenues, eBay has been strengthening its core platform and improving user experience. Notably, in the last-reported quarter, eBay's total net transaction revenues were $2.09 billion.

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.

eBay joined forces with leading service providers, namely Handy, Porch and InstallerNet, to offer installation services to its shoppers. We believe that the availability of enhanced services will attract customers to the platform, driving eBay’s sales in the to-be reported quarter.

The company recently expanded its eBay Authenticate platform into the luxury jewelry category, which offers jewelries verified by professional authenticators. This move is an effort by the company to gain buyers’ trust and expand the Marketplace business.

The Zacks Consensus Estimate for net transaction revenues is currently pegged at $2.26 billion.

Overhangs

Increasing competition in the e-commerce market from companies like Amazon and Wal-Mart may affect it performance. Additionally, Facebook too rolled out Facebook Marketplace that allows users to buy and sell items within their local communities.

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

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement, especially when the company is witnessing negative estimate revisions.

eBay currently has a Zacks Rank #3 and an Earnings ESP of 0.00%, which makes earnings surprise prediction difficult.

Stocks With a Favorable Combination

Here are some companies, which, per our model, have the right combination of elements to post an earnings beat this quarter:

Twitter, Inc. (TWTR - Free Report) has an Earnings ESP of +26.6% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Square, Inc. (SQ - Free Report) has an Earnings ESP of +6.6% and a Zacks Rank #2.

Lumentum Holdings Inc. (LITE - Free Report) has an Earnings ESP of +1.1% and a Zacks Rank #2.

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