Fast Growth in eBay Earnings Could Send Shares Soaring

Fast Growth in eBay Earnings Could Send Shares Soaring

eBay will release its quarterly report on Wednesday, but investors are already expecting a lot from the auction giant. After having given back some of its gains from earlier in the year, the stock is once again making a run at all-time record highs on the strength of its two-part business model.

In the past, most investors have looked solely at the company's PayPal unit as the part of the company with the most growth potential. But eBay's legacy marketplace business has also pulled its share of the earnings weight lately, as the company has come up with good answers to compete better against its retail rivals. Let's take an early look at what's been happening with eBay over the past quarter and what we're likely to see in its report.

Stats on eBay

Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$3.89 billion

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Source: Yahoo! Finance.

Can eBay earnings keep knocking it out of the park?
Analysts have actually made a minor cut to their calls on eBay earnings over the past few months, reducing their June-quarter estimates by $0.02 per share. But they've kept their long-term earnings expectations constant, and the stock has recently regained just about all the ground it had lost since early April.

eBay's losses came after its first-quarter earnings report, in which the company's revenue came in slightly below expectations. Sales growth of 14% wasn't quite enough to keep growth investors happy, especially coming on the heels of a strong holiday quarter that had showed revenue gains of 18% year over year. Yet the double-digit growth rates that eBay managed to deliver show just how high investors' expectations of the online giant are.

The surprising thing about eBay's growth success lately is that it has come despite the continuing stranglehold of over the online retail industry. eBay shares have dramatically outperformed Amazon's for more than a year now, as it has successfully focused on high-growth areas like mobile e-commerce and emerging-market retail. Although the company remains well behind Amazon in terms of overall revenue, eBay's valuation is a lot more attractive based on just about any conventional earnings- or cash-flow-based model.

Of course, PayPal has been a huge contributor to eBay's sales, and even though Amazon has reportedly started working on a competing payment service, PayPal has made strong moves into the store-retail area, with expectations that the service will be accepted at more than 2 million retailers by the end of 2013. So far, that's been enough to hold Google's Wallet at bay, even though Google has been updating Wallet to link payments to its Gmail service and building security infrastructure into its Chrome browser.

Another big threat to eBay, though, is the Internet sales tax, which passed in the Senate back in May. The bill would authorize states to tax online transactions that have previously gone untaxed, creating a big new source of revenue for state governments but costing eBay, Amazon, and other online retailers that don't have a brick-and-mortar presence in many of the states in which their customers live a huge competitive advantage. So far, the House hasn't taken up the bill, and there are signs of some resistance to the bill's passage.

In the past week, eBay shares have risen sharply. With June same-store sales coming in up 17.7% according to ChannelAdvisor, the total quarterly comps for the company were up more than 18%. That bodes fairly well for e-commerce in general, despite the best efforts of traditional retailers to thwart the advance of technology.

In eBay's earnings report, watch for the breakdown of results between PayPal and eBay's Marketplace divisions. If the strength in both areas continues, then eBay could make a powerful one-two punch that could send the stock still higher in the months and years to come.

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Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends, eBay, and Google. The Motley Fool owns shares of, eBay, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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