eBay Q2 Earnings Preview: Expect A Robust Quarter; Continued Ramp Up From PayPal

Jul.12.12 | About: eBay Inc. (EBAY)

eBay (NASDAQ:EBAY) report Q2 earnings on July 18th.

The Street expects:

  • Revenue: $3.36 billion

  • EPS: $0.55

  • Q3 guidance: $3.42 billion

In Q1, eBay delivered a robust quarter that validates its strength in e-commerce. Revenue of $3.3 billion was an increase of 29% y/y. PayPal continues to gain momentum with revenue up 32% y/y due to increasing merchant and consumer adoption. Management guided $3.3 billion in revenue, plus 20% y/y, and non-GAAP EPS of $0.54.

Heading into earnings, PayPal will continue to drive growth for eBay and building its mobile and point of sale (POS) platform is a top priority. According to management, PayPal expects to process $7 billion in mobile payments this year.

In late May, eBay made two significant announcements as it makes a further push into offline payments and mobile. The first announcement was a partnership with VeriFone and Equinox, which are the #1 and #3 POS terminal providers. VeriFone operates in the electronic payment space and is used by 80% of the top 200 retailers. In addition, it has 5 out of 7 million terminals in the U.S. While these partnerships will not have immediate effect on PayPal, they nonetheless effectively legitimize PayPal's potential and pave the way for broad adoption by retailers.

The second announcement indicated that PayPal's POS was gaining traction as 15 national retailers had agreed to accept PayPal as a payment method. The new retailers are: Abercrombie & Fitch (NYSE:ANF), Advanced Auto Parts, Aeropostale (NYSE:ARO), American Eagle Outfitters (NYSE:AEO), Barnes & Noble (NYSE:BKS), Foot Locker (NYSE:FL), Guitar Center, Jamba Juice, JC Penney (NYSE:JCP), Jos.A.Bank, Nine West, Office Depot (NYSE:ODP), Rooms To Go, Tiger Direct and Toys "R" Us. The 15 retailers add additional 17K locations for PayPal's POS. Counting Home Depot's (NYSE:HD), PayPal has partnerships with a total of 16 retailers with over 19000 locations.

Going forward, I expect further adoption by the retailers as PayPal's POS to deliver considerable payment flexibility to the consumers. I note that McDonald's (NYSE:MCD) is currently testing the PayPal application in France and Australia. If McDonald's decides to adopt PayPal POS, eBay could double its POS locations with McDonald's' 26K branches.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.