Ebay Earnings Preview: Q408

eBay is scheduled to report fourth quarter 2008 results after the market closes on Wednesday, January 21. Based on our analysis, we at EarningsPreview.com are expecting EBAY to report disappointing results that fail to meet Wall Street’s expectations.

 

Analyst Expectations

We are forecasting revenues of $2.06 billion and EPS of $.38. This would represent a 4% decline in revenues from last year’s $2.18 billion in the same period. The current analyst consensus calls for revenues of $2.12 billion and $.40 EPS. On October 15, the company gave fourth quarter guidance for revenues of $2.02 – 2.17 billion and EPS of $.39 – .41.

 

A severe economic recession combined with a shortened holiday shopping season contributed to one of the most challenging retail environments in years. According to the National Retail Federation, initial holiday sales declined 2.8% from last year.

 

While ecommerce sales may have been slightly better, it appears that eBay was not one of the big winners this holiday season. Website traffic declined an estimated 8% in the fourth quarter. In addition, it appears that fewer visitors are actually completing transactions on the site. Many are just browsing, and those that due purchase are choosing lower priced items.

 

In addition, eBay has done itself no favors by alienating its core group of sellers by making some very unpopular changes to its key rating system. The combination of seller frustration with eBay policies along with an extremely challenging economic environment may cause many of these sellers to vanish completely.

 

Share Performance

eBay’s shares are down almost 60% from their 52-week of $33.47 set in April 2008. In 2008, their shares declined a whopping 58% poorly underperforming the Nasdaq’s 41% decline.

 

Valuation

Shares are now trading at only 8.2x consensus 2009 EPS estimates. We are fully expecting the company to announce disappointing 2009 guidance numbers that are below Wall Street consensus estimates. However, at these valuation levels it’s hard to recommend investor’s sell this stock. After the earnings release maybe a good time to pick up some shares on the cheap.

 

Recommendation: Hold with a $15 price target.

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