Seeking Alpha
, StockSaints (40 clicks)
Long/short equity, special situations, newsletter provider, options
Profile| Send Message|
( followers)  

eBay (NASDAQ:EBAY) share prices continue to take a beating and many investors aren't sure why. Along with Amazon (NASDAQ:AMZN), eBay is one of the web's largest online shopping networks. It's still experiencing strong growth, both from its Marketplace and from the PayPal division. So where's the love from shareholders?

On Wednesday's session, we saw eBay dive straight through its 200-day simple moving average. Although this is typically seen as support, we saw that it certainly did not hold up. Without terrible guidance (second quarter estimates were a little sub-par, but not horrid), bad earnings report, or awful PR stunt, it's hard to imagine what could push the stock down this hard.

eBay has largely under-participated in the strong rally in equities this year and it's beginning to puzzle investors, including myself. It could be that investors are worried about Google's (NASDAQ:GOOG) new Gmail money transferring system. While PayPal is a huge part of eBay's business model, (about one-third of revenues), it's somewhat unlikely that the stock would sell off this hard on this news.

Then again, it could be worrisome, no? If you were running a local business and a new competitor moved in with the possibility of eliminating 33% of your business's revenue, there is no doubt you would be quite worried.

But the truth is, no matter how great the new Google Gmail product is, it won't totally derail PayPal's role in online transfers and payments. I'm not saying that it couldn't take significant market share -- which I do doubt -- I'm just saying that it won't eliminate PayPal's large market presence.


(Click to enlarge)

So every investor is probably asking themselves, why such a sell-off? Even on Friday, with a steady rally in the broader indices from the mediocre nonfarm payrolls report, eBay actually closed in the red, down 13 basis points. eBay is up approximately 2% year-to-date compared to the S&P 500 (NYSEARCA:SPY), which is up over 15%.

Are investors becoming worried by increased pressure from MasterCard (NYSE:MA) and Visa (NYSE:V)? Perhaps. While Visa was able to capitalize better than MasterCard last quarter, which was apparent during the earnings reports, I still think PayPal has a unique and different approach to online payment.

Even so, eBay has begun to make the push into storefronts and now features a new window shopping experience. In times of uncertainty, I like to turn to management. As you will read below, the company is very focused on long-term growth and staying ahead of the curve by investing heavily in mobile. Here are some snippets of what CEO John Donahoe had to say during the recent annual shareholders meeting in April:

"We see the future of commerce and how we're positioning our company to ensure that we're helping to drive that future, enable that future and be a leading innovator in that future."

"[Retailers] are understanding they need to reach consumers online [and] on mobile devices, as well as in the store and they need to provide a seamless shopping experience...we're positioning our company to aggressively capitalize on the changes I've been talking about and lead in this new commerce environment."

"There are four battlegrounds where a lot of this new opportunity is going to evolve: mobile, local, global and data...rest assured that our company is investing heavily in each of these areas, investing so that we're the innovation leader, investing so that we build great consumer experiences, investing so that we're the best partner for merchants as this profound change happens in the world of commerce and payments.

"We invested early, we invested heavily in mobile, we are the clear mobile leaders today, and we will continue to invest in mobile innovation and our capacity to innovate in the mobile environment has never been higher."

Also, Donahoe mentioned on the call that that the company expects to see revenues between $21.5 billion and $23.5 billion in 2015. In 2012, eBay had revenues of $14 billion. If we take the middle of that estimate ($22.5 billion), investors are looking at revenue growth of about 60%.

60% is pretty darn good if Donahoe's forecast is correct. It's clear that eBay is not going to be -- or at least try not to be -- one of the companies that falls behind the next trend and fails to ever catch up. It is doing its absolute best to stay at the forefront of the leading consumer trends and as Donahoe said, "our company is investing heavily."

So What Do We Do?

eBay failed to close above its 200-day simple moving average and the price action is looking a little bearish. For short-term bulls, this is not good. But for long-term bulls, this could be a great entry. While the time eBay has spent this year in the lower-$50 range has proved rewarding, we may see the stock trade down into the upper- to mid-$40's.

It's especially likely that eBay will trade down ahead of its second quarter earnings report, since they guided below estimates for both earnings per share and revenue. Analysts expected $0.66 per share on revenues of $3.95 billion. eBay guided slightly below that, with an EPS in the range $0.61 - $0.63 on revenues of $3.8B - $3.9B.

While it is unfortunate, the pain is likely temporary for bulls. The full year guidance remained unchanged and eBay doesn't think the lower numbers will be something to worry about going forward.

I am actively looking to add to eBay on dips below $50 and will likely add on a sharp sell-off after earnings, pending the conference call and the results. Second quarter earnings are scheduled for July 17th.

Source: eBay: Is It Worth A Look After The Pullback?