Yesterday we analysed eBay’s (NASDAQ:EBAY) segmental performance and growth opportunities. Going forward, we take a closer look at the company’s full year and long term guidance and its cash and debt management, and how it will support the company in achieving its long term guidance.
The management gave 2013 guidance expecting revenues of $16 billion to $16.5 billion with non-GAAP EPS of $2.70 to $2.75. Year to date, eBay has achieved $11.5 billion in revenues and non-GAAP EPS of $1.64. The company has also announced that it will achieve the lower end of the guidance for revenues and earnings for this year taking note of the weaker holiday season this year accompanied by a decelerating U.S. e-commerce growth rate. Investors were not too impressed with the outlook, which led the share price down by 4% soon after the earnings release.
However, we believe that the company is best positioned to achieve its 2015 guidance of $21.5 to $23.5 billion in revenues, with an annual growth rate of 14% to 17%. With eBay leveraging on its growing mobile users with the acquisition of Braintree, and a high growth road ahead for Paypal, the company can achieve its target revenues and more. On the earnings front, guidance of 14% to 17% annual growth in EPS seems reasonable given the consistent historical trend of earnings. The chart below shows the revenue growth till 2015.
Let us further evaluate whether the company debt and balance sheet management will support its long term target performance.
eBay Balance Sheet Analysis
The company has a solid cash balance of $10.271 billion, including short term investments as of Q3 2013. Net of debt, cash balance stands at $6.108 billion with debt amounting to $4.163 billion for the same period. This gives eBay the leverage to invest for the future in product development and acquisitions. eBay has recently bought the payment gateway Braintree for a $800 million in an all-cash deal.
eBay’s Bill Me Later (BML) offers deferred payments and financing service to all the customers using Paypal. It enables online retailers to offer transactional credit to consumers at the point of sale, wherein the credit risk in borne by the company itself. Though BML has proven to be an effective use to eBay’s offshore cash so far, it adds a layer of financial risk to company’s balance sheet. For Q3 2013, Bill me later had a total payments volume (TPV) of $1 billion, which represents a penetration of 4.3% on eBay in the US and 2% of merchant transaction services. Currently net charge-offs which measures the annualized ratio of BML’s net credit losses relative to average loans receivable for the quarter is 5.5%. It would be a matter of concern if the charge-offs would increase amid weaker US economic outlook.
Keeping in mind eBay’s future guidance, along with a cash safety net of $6 billion, and a trailing LTM price to earnings ratio of 25, we continue to be bullish on eBay. eBay’s drive to provide a complete online e-commerce platform to its consumers, going forward, will result in positive returns to its investors.
To see eBAY’s latest stock price movement, click here (NASDAQ:EBAY)