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Earnings Preview: What Might Be Expected for eBay’s Q2 Results?

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July 19, 2017
Ebay Campus Exterior
iStockphoto.com/nicolasmccomber

eBay (EBAY) reports second-quarter earnings after market close on Thursday, July 20. As more consumers shop online and it faces competition from Amazon (AMZN), Walmart (WMT) and many more, the company has focused on carving a niche for itself in the ecommerce world with its Marketplace, Stubhub, and Classifieds segments.

In the last quarter, eBay’s gross merchandise volume (GMV), the total dollar amount of merchandise sold across its marketplaces, was reported to have increased 2% to $20.9 billion. Excluding the impact of foreign exchange rates, management reported a 5% increase. GMV is one metric used by ecommerce analysts because these companies ultimately generate revenues through the fees earned from sales on their platforms.

Another metric for ecommerce companies that is routinely followed by analysts is the number of active buyers a site has. In the first quarter, eBay reported it had added 2 million active buyers, a 4% increase from the 167 million reported in Q4 2016. CEO Devin Wenig partially attributed that rise to a “relatively robust consumer-spending environment” on the company’s earnings conference call.

One factor beyond improved consumer spending that might be helping eBay’s GMV and number of active buyers is its ongoing efforts to improve its platform. Over the past several quarters, the company has made several changes including  a redesign of its website, and on the back end the company has been focused on what it calls its “structured data initiative”, which is focused on improving the user experience on its Marketplace platform by making products easier to find.

The company also recently announced a price match guarantee on more than 50,000 items in the United States. eBay said it “guarantees that an eligible deal will be the best price online, or eBay will match the lower price of a competitor.” 

EBAY YTD stock performance shown on the thinkorswim platform

FIGURE 1: EBAY OUTPERFORMING.

eBay has been outperforming the broader tech sector since the start of the year. After the recent tech rally that started at the beginning of July, the stock is up 23.32% year-to-date. Chart source: thinkorswim® by TD Ameritrade.  Data source: Standard & Poor’s. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

eBay Earnings and Options Trading Activity

For the second quarter, eBay is expected to report earnings of $0.45 per share, up slightly from $0.43 per share in Q2 2016, on revenue of $2.31 billion, according to third-party consensus analyst estimates. In last quarter’s earnings release, the company said it expects net revenue between $2.28 billion and $2.32 billion, and earnings per share in the range of $0.43 to $0.45 for the second quarter.

Options traders have priced in just over a 6% potential share price move in either direction around the earnings release, according to the Market Maker Move indicator on the thinkorswim® platform. In short-term options trading leading up to the earnings release at the July 21 monthly expiration, calls have been active at the 36 strike price while puts have been active at the 35 and 37 strikes. The implied volatility sits at the 69th percentile.

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined price over a set period of time.

Looking Ahead

Two Dow stalwarts wrap up earnings this week with Microsoft (MSFT) reporting after market close on Thursday and General Electric (GE) releasing results before market open on Friday. Next week, Alphabet (GOOG) kicks off a packed week that includes Twitter (TWTR), Facebook (FB) and Amazon (AMZN). Make sure to check out today’s Market Update to see what else is happening in the markets.

Good Trading,
JJ
@TDAJJKinahan


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