- eBay is expected to report its Q1 2016 earnings on April 26.
- Analysts expectations peg Q1 2016 earnings per share at 45 cents on a top line of $2.08B.
- Forex tailwinds, SEO changes and structured data changes could provide meaningful upside.
eBay Inc. (NASDAQ:EBAY) is scheduled to announce its Q1 2016 results after market close on April 26. The current analysts consensus puts eBay Q1 2016 EPS ( Earnings Per Share) at 45 cents, on a revenue of $2.081 billion, implying an earnings decline of 6.25% YoY and topline expansion by 9.7% YoY. eBay stock has declined from its high of $29.6, set in November, to its current price of close to $25, a 16% pullback in the stock price. However, the stock has rallied over the last couple months, moving higher from its low of $21.52 it hit on Feb 8.
Can the upcoming earnings report help to sustain this rally of sorts? The answer from sell-side analysts isn't very encouraging for eBay investors. Paul Vogel of Barclays recently downgraded eBay to equal weight, citing weak fundamentals, at the end of March. Morgan Stanley followed with a downgrade of its own on April 19, citing risks in international marketplaces business. On a contrasting note, Bernstein maintained its outperform rating in an update on early April, stating that eBay's structured data efforts are working. With conflicting commentary from leading investment houses, what should investors expect going into the eBay Q1 earnings release?
eBay Q1 guidance
eBay management had, in its Q4 earnings call, issued the following guidance for Q1 2016.
- Q1 2016 revenue in the range of $2.05B - $2.1B.
- Non-GAAP EPS in the range of $0.43 - $0.45.
The table below summarizes the implied YoY growth at the guidance midpoints.
|Guidance mid-point||Year Ago||Implied Growth|
|Revenue ($, in Billions)||2.075||2.061||0.68%|
|Non-GAAP EPS ($)||0.44||0.48||-8.33%|
eBay Earnings History
eBay Inc. has released 2 quarterly earnings post eBay-PayPal split. The company has beaten the street's estimates in each of the last 2 quarters, with an average earnings surprise of 4.8% and an average 0.2% revenue beat. However, the earnings surprise has failed to significantly drive momentum in eBay stock, as the company recorded YoY declines in topline as well as bottom line. With the management guidance as well as analyst consensus implying a revival of topline growth in Q1 2016, can the upcoming earnings release sustain the one month old rally in eBay stock price?
SEO and Structured Data Efforts Could Boost Revenue
eBay management had provided an update regarding the ongoing SEO and structured data efforts on their last quarterly earnings call. Quoting Devin N. Wenig, CEO of eBay from the Q4 earnings call:
With our structured data initiative, we increased the percentage of listings processed to 37% of our relevant listings in Q4, up from 28% in the prior quarter, while adding 79 million unique products to our catalog, and we recently announced that the next phase of required product identifiers would go into effect at the end of February. This phase will add more categories and countries to increase coverage to approximately 60% of relevant listings on our platform.
So if things go as per plan, eBay should soon complete its move from listings focussed marketplace to an SEO focused marketplace sometime in 2016. What this means is eBay will realign itself to Google and rest of the internet by categorising its listing under relevant product categories and reducing the number of doorway (thin content) pages. The doorway pages and listings focussed approach caused eBay to lose their page one position (in Google search) for 75% of their key terms. With the management embracing an SEO focused approach, the headwind should become a tailwind in the form of greater traffic from Google searches. The impact over the long term could be significant. Hence, any update on the SEO and structured data front will hold investors attention.
Forex Tailwind Could Lift eBay Q1 numbers
The management also cited forex headwinds as the major cause for the implied YoY decline in its EPS guidance. Quoting Scott Schenkel, CFO, eBay from the Q4 2015 earnings call:
We expect non-GAAP EPS of $0.43 to $0.45 a share, representing a decline of 6% to 10%. The decline is due to the stronger U.S. dollar and impact of the synergies which cost us 10 points of EPS year-over-year. This impact will be more pronounced in the first half of 2016.
The management had anticipated significant forex headwinds. However, the US Dollar had weakened through the course of Q1, as shown by the US dollar index chart below.
As shown above, the US dollar strength has lapped a yearly cycle and should be less of a concern in the upcoming earnings report. With a weaker US dollar, eBay's international segment should come in stronger than expected. Given that the international segment contributes 60% of eBay business, the forex tailwinds could have a meaningful upside to Q1 2016 numbers.
StubHub Growth Will Be In Focus
No eBay earnings report is complete without a fair mention of StubHub, the ticket booking portal it acquired in 2007. After the spin-off from Paypal, StubHub has been the clear growth engine at eBay. However, the platform registered a decline of 4% in FY 2014, raising concerns over its ability to sustain growth. However, the growth picked up in the second half of FY 2015, allaying investor fears to some extent.
Source: eBay Q4 2015 presentation
The management pointed out the recent work in terms of product improvements and pricing changes, launched in August, for the turnaround in StubHub's fortunes. Hence, investors will keep a close eye to see if StubHub can sustain this growth in the face of increasing competition from the likes of Ticketmaster.
eBay is set to report its Q1 2016 numbers on April 26th, after market close. Analysts expect the company to report topline growth of 9.7% and earnings of 45 cents per share. With Forex headwinds slowing, the management guidance and analyst expectations could just prove to be conservative. With an earnings whisper number of 47 cents/share doing the rounds, eBay could well trump estimates for the third consecutive quarter. Given the huge pullback in eBay stock and the ongoing efforts to turnaround the business, now could be a good time for long-term investors to get into the stock ahead of the upcoming earnings release.