Will EBay Q4 2015 Earnings Miss Estimates?

  • Competition from sellers such as Amazon could put a dampener on eBay’s earnings growth.
  • Share repurchases most likely remained at the same level due to elevated stock prices.
  • Star Wars may serve as a boost in the arm for the company.

eBay Q4 2015 earnings will be reported on Jan. 27, after market close. The analyst consensus is for the company to report earnings per share of $0.5, on revenue of $2.32 billion. If eBay (NASDAQ:EBAY) meets expectations this will represent a 9% YoY fall in earnings. However, eBay faced challenges in the last quarter that could cause the company to fall short of even conservative estimates.

Competitive pressures

eBay got its start as an online auction business. More recently, though, eBay has been encouraging its users to utilize a “fixed-price listing”. eBay’s management believes this helps move products. This fixed pricing model also seems more like Amazon’s third party retail business. This means that eBay is gunning for the market share of a much larger player in the industry, Amazon (NASDAQ:AMZN).

Amazon ranks No. 2 in the North American retail discretionary sector with a 9% market share, according to the Bloomberg leaderboard. When people think of fixed price products they gravitate towards Amazon when shopping online. People looking for used bargains may have felt disappointed when they couldn’t find anything to buy. In contrast to eBay, analysts peg Amazon’s Q4 FY 2015’s earnings per share (EPS) at $1.64, which represents an increase of 264% YoY.

Share repurchases

In Q3 FY 2015, eBay bought back 2% of its outstanding shares for $27.36 per share on average. The stock hovered between this price and $30 per share (see chart below) for two of three months in the fourth quarter. Hopefully, eBay exercised prudence and kept any additional share buybacks at the same level. However, this may not be enough to significantly offset net income declines, putting the brakes on eBay EPS growth.

EBAY-stock-chart

Source: eBay stock price chart by amigobulls.com

Currency fluctuations

The American dollar remains strong, meaning it remains expensive in relation to other currencies. This may put friction on eBay’s reported results. In Q3 2015, eBay’s reported revenue decreased 2% year-over-year and increased 5% when factoring out foreign currency fluctuations. The dollar strength could negatively impact EPS growth causing eBay to miss estimates.

Star Wars

Not everything is gloom and doom for eBay. The release of Walt Disney (NYSE:DIS) Star Wars: The Force Awakens served as a shot in the arm to merchandisers everywhere. It could serve as a temporary boost to eBay’s auction business as users list old nostalgic Star Wars memorabilia in hopes of procuring a good price. eBay’s StubHub subsidiary, which sells movie tickets on a secondary market could also benefit from the Star Wars craze.

eBay Q4 2015 Earnings – Closing Thoughts

An earnings miss could really punish eBay’s stock price. If it misses then investors may want to consider picking up more shares. Even now eBay stock trades at a forward P/E ratio of under 15. And, eBay still generates cash. The company’s free cash flow came in at $2.5 billion for the first three quarters of 2015.

Over the long-term eBay should do ok, especially once it gets past the pains of the Paypal Holdings (NASDAQ:PYPL) spinoff. Its transition to a more fixed price model is merely indicative of the company adapting to the times to help improve sales. StubHub also represents a bright spot in the company’s product portfolio. eBay also wants to expand its footprint in the classified business, proving that its management doesn’t want to see their company stagnate.

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  • I am not an investment advisor, and my opinion should not be treated as investment advice.
  • I am not being compensated for this post (except possibly by Amigobulls).
  • I do not have any business relationship with the companies mentioned in this post.
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