eBay (NASDAQ:EBAY) will report Q1 2014 earnings on April 29th. I remain cautious on eBay's outlook as competition will likely take a toll on its Market Place and payment businesses.
Consensus expects EPS of $0.67 on revenue of $42.2 billion (+12% y/y) and EBITDA of $1.3 billion (+10% y/y). Consensus is also cautious on increased spending in opex amid a rising competitive environment, and expects 279bps y/y decline in gross margin and 53bps decline in EBITDA margin.
Amazon and Google are near-term threats
In my view, both Amazon (NASDAQ:AMZN) and Google (NASDAQ:GOOG) (NASDAQ:GOOGL) threaten eBay's Market Place business in the near term. Potential market share gain from the offline retailers like Best Buy (NYSE:BBY) and Wal-Mart (NYSE:WMT) may not be sufficient to offset market share loss to Amazon and Google. Google's beta-testing of unlimited same-day delivery will compete directly with Amazon Prime's two-day shipping. Amazon, on the other hand, continues to expand its e-commerce platform with new products and verticals.
Payment business under pressure
While PayPal has dominated the online payment business for quite a while, there is increased competition from well-established internet players (i.e., Google and Amazon) and startups (i.e., Yerdle and Square).
To fend off the increasing competition, eBay will have to increase R&D and marketing. However, this strategy may result in further margin decline, which may trigger share price de-rating.
Valuation looks reasonable at 16x FY15E earnings and a 1.1x FY15E PEG, compared to the average of 30x FY15E earnings for the e-commerce peers. I am cautious on eBay going into the results season.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.