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Previewing eBay’s Q2 Earnings

Yes, it is that time again. First, let's take a look at how I did with my Q1 forecast versus actual results.

Payments (PayPal)

Last quarter I had said that PayPal revenue should come in at 819 MM, the actual number that came in was 809 MM. Not bad at all. This quarter, I am estimating more subdued growth at 2% in revenue increases from Q1, and 23% growth year over year. This is slightly below historical growth rates. This puts revenue for PayPal to come in around 825 MM. PayPal is continuing to expand market share here in the US as well as Europe and Asia. I believe PayPal’s emphasis on mobile payments and aggressively targeting Asia (such as the deal with Alibaba) is the right direction for PayPal to follow.

A press release yesterday created some hubbub about some patents that Paypal has apparently infringed. After taking an initial look, I’m convinced it’smeritless. There is a good article here that goes into the details.

eBay should take it seriously, but it looks like the accusations stand on shaky ground.

MarketPlaces (eBay)

Since eBay’s change their fee structure, the site has experienced explosive growth in listings. The sell through rate has fallen from the mid 35% to low 30%, while this at first may seem troubling; this makes sense with the increased listings. The biggest wild card here is if the counter cyclical nature of MarketPlaces in recessions continues to have a positive effect on eBay. MarketPlaces is still the weakest and most critical area for eBay. Last quarter I estimated revenue at 1.38 billion for MarketPlaces. I hit the bull’s-eye here – eBay reported 1.38 billion last quarter. I’m taking a cautious stance and forecasting revenue to come in at 1.39 billion, this is a growth rate of 1% quarter over quarter and 11% year over year.

Communications (Skype)

I’ve said for a while now that Skype was a hidden gem, and a much maligned entity. As mobile computing continues to take off, Skype is turning out to be a great investment. True, completely tangential to Payments and eBay, however - it cannot be denied it remains a high growing, profitable, and ubiquitous solution for VOIP. With apps on the Iphone and Android – Skype’s position continues to look very promising. Last quarter, I had estimated a pro-rated revenue value. I didn’t realize that eBay was no longer reporting Skype’s revenue and bottom line contribution – so I won’t revisit this segment since we won’t have a reportable benchmark.

Currency Fluctuations

I must acknowledge that I made an error last quarter in respect to the Euro With half of eBay’s revenues coming from international markets; currency rates have a huge impact on revenue. I had reported that eBay would benefit from the stronger dollar, when in reality of course – it is quite the opposite. I had factored this to improve the bottom line by 1% last quarter, when I should have subtracted 1%. The dollar gained continued to gain strength in the second quarter of this year versus the euro – around 10 percent. I would estimate this should negatively impact eBay’s earnings around 1.5 percent due to currency exchange rates.

***

eBay had given 2.150 to 2.2 billion in revenue guidance from the last earnings (Q1) report. I forecast that total eBay revenue will come in at 2.181 billion with eps of 0.28 cents (GAAP) and .38 cents (non-GAAP). With the unforeseen debt crisis that unfolded in Europe this quarter, their bottom line has a good possibility of coming in slightly below analyst estimates, it might be rough day for eBay.

Disclosure: Author is long EBAY

Source: Previewing eBay's Q2 Earnings