Wednesday afternoon eBay (NASDAQ:EBAY) reported its FQ4'13 earnings. Technically speaking, eBay narrowly beat the Wall Street consensus on profit, but also missed on revenue. Given what happened in the brick and mortar retail sales world this holiday season, it might be time to sound the alarm.
The information below is derived from data submitted to the Estimize.com platform by a set of Buy Side and Independent analyst contributors.
On Wednesday eBay reported quarterly earnings of 81c EPS and $4.530B revenue. Meanwhile Wall Street was expecting 80c EPS and $4.555B revenue and the community consensus from Estimize.com was 81c EPS and $4.557B in sales.
Over the past 7 quarters the profit forecast from Estimize.com has been more accurate than Wall Street 4 times. By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students, and non professional investors Estimize has created a data set that is up to 69.5% more accurate than Wall Street, but more importantly it does a better job of representing the market's actual expectations.
It has been confirmed by an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.
What is this means is that eBay's report from Wednesday was really a miss, not a beat. The buy-side as represented by the Estimize consensus was expecting the 81c EPS that eBay reported, but also had higher revenue expectations. Given the weakness in retail sales at physical stores in December, expectations for e-commerce websites have surged lately, and it's a discouraging sign that eBay missed. Here is a graph of the buy side revenue expectations for competitor Amazon (NASDAQ:AMZN).
Something similar happened with the eBay revenue consensus leading into the report, but eBay failed to report inline with forecasts.
Based on our quantitative research we have found that if you benchmark against the market on average, when a firm misses the Estimize consensus the stock price tends to drift downward over the next 3 trading days after the market reopens. Of course in this case there is another big story from Wednesday's release, other than the numbers, and it involves Carl Icahn.
In Wednesday's report eBay announced that famous activist hedge fund manager Carl Icahn, a 0.82% shareholder of the company, has nominated 2 board members and recommended that subsidiary PayPal be spun off into its own company. Icahn's argument is that by unbundling the two platforms into separate companies lead by separate management, both could be run more effectively. eBay CEO John Donahoe has rejected the idea and insisted that eBay and PayPal have strong synergies and there is no reason to break PayPal off. Specifically Mr. Donahoe cited the position of PayPal as a leader in mobile payment, which enhances eBay's position as a mobile platform going to in future.
Whenever activist investors get involved in a stock, the future is uncertain. From a strictly fundamental point of view, eBay experienced year over year growth this quarter but failed to live up to the buy-side's expectations. The risk of Amazon and other e-commerce websites capturing more and more of the online commerce market has become a threat hanging over eBay's head.