eBay Expected To Deliver Solid 1Q Earnings, Yet Concerns Surface Over 2Q Outlook

Apr.17.12 | About: eBay Inc. (EBAY)

By Brendan Gilmartin

Overview

eBay (EBAY) is scheduled to report 1Q 2012 earnings after the closing bell on Wednesday, April 18. The numbers are typically released at 4:15 p.m. EST and will be followed with a conference call at 5:00 p.m. eBay is expected to deliver solid results for the recent 1Q on strength in the PayPal and Marketplaces segments, while the 2Q outlook is fairly uncertain.

Outliers And Strategy

In its previous earnings release, eBay gave the following guidance for 1Q 2012:

  • Non-GAAP earnings per share in the range of $0.50 to $0.51. The Street estimate is $0.52. (Source: Yahoo Finance)
  • Revenues are forecast in the range of $3.05 billion to $3.15 billion. The consensus is $3.15 billion.

With 1Q 2012 results potentially priced in, much of the focus will center on the outlook for 2Q 2012.

  • The current consensus for Non-GAAP EPS for the 2Q 2012 period is $0.55.
  • The consensus for revenues in the 2Q 2012 period is $3.36 billion.

Any adjustments to the outlook for FY2012 could also have consequences for eBay shares. Back in January, eBay said it expects net revenues in the range of $13.7 billion to $14.0 billion with non-GAAP earnings per diluted share in the range of $2.25 - $2.30.

eBay is seen topping its previously announced guidance for 1Q 2012 thanks to ongoing strength in the PayPal business and its expanding leadership position in global payments. The Marketplaces business is also poised to deliver solid 1Q performance.

Recent News

  • 04/17: Bank of America reiterated a Buy rating and a $43 price target on eBay, according to a post on Benzinga.com. The firm sees results topping consensus estimates in 2Q, despite increased competition and weaker auction sales.
  • 04/13: Nomura Securities is looking for eBay to post 1Q 2012 earnings above Stredet estimates and raised its price target to $37 from $32, thanks in part to strength in the Marketplaces segment, according to StreetInsider.com. The firm also raised EPS estimates for FY2012 an FY2013, but maintained a Neutral rating.
  • 04/12: Susquehanna Financial Group expects 1Q results to come in slightly above estimates, according to a post on Barron's, but cautioned that gross merchandise volume (GMV) could weigh on the 2Q 2012 outlook.
  • 03/19: Citigroup downgraded eBay to a Hold rating, citing a less attractive risk/reward with the stock approaching the firm's $39 price target, according to a post on Benzinga.com.

Technical Review

eBay shares are up more than 17% YTD and recently touched a 52-week high of $38.18, implying that solid results for the recently concluded 1Q 2012 period may be priced in at these levels. If the company can deliver on expectations to top the 1Q2012 consensus and slightly increase its outlook for 2Q (estimates call for eBay to report in-line guidance), the shares could re-test the recent highs near $38. Conversely, the support is at the 50-daySMA near $35.85, with downside risk to $35.00, followed by $33.25. (Chart Courtesy of StockCharts.com)

Summary

eBay shares posted solid gains over the course of the 1Q 2012 period amid evidence of improvement at the Marketplaces segment (eBay.com and other e-commerce sites) and the continued leadership of PayPal in both online and mobile payments. The Street Estimates for NON-GAAP EPS of $0.52 on revenue of $3.15 billion are at or above the high end of the outlook the company provided back in January. Should eBay therefore fail to meet these lofty expectations, the shares are vulnerable to several points of downside risk. Investors will also focus on the outlook. The guidance for 2Q 2012 is widely expected to bracket consensus estimates. Should earnings and guidance surprise to the upside, eBay is well-supported above the 50-Day SMA and could make another run back toward the recent 52-week high of $38.18.

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