eBay Earnings Preview: Second Quarter 2009

Ebay [[EBAY]] is scheduled to report their second quarter 2009 results after the market closes on Wednesday, July 22. Based on our analysis, we at EarningsPreviews.com are expecting EBAY to report better than expected results that exceed Wall Street’s consensus expectations.

 

Analyst Expectations

We are forecasting revenues of $2.02 billion and EPS of $.37. This would represent an 8% decline in revenues from last year’s $2.20 billion in the same period. The current analyst consensus estimates calls for revenues of $1.99 billion and EPS of $0.36.

 

While the current retail environment remains quite challenging, eBay’s traffic measures continue to show moderate growth. We anticipate the eBay benefited from improving sentiment in the quarter along with consumers shift to more aggressive bargain-shopping. However, the increasing use of promotions within the marketplace segment will continue to pressure margins.

 

While eBay’s stock has performed well in 2009, over the past few years the stock has disappointed many investors. However, the company appears to be refocusing on increasing shareholder value. With ecommerce expected to improve ahead of the critical holiday season, the current Wall Street estimates may prove too conservative for the second half of the year.

 

Share Performance

Since the beginning of the year, eBay’s shares have gained 33%. In 2008, EBAY’s shares fell 58% and badly underperformed the 34% decline in the Dow Jones industrial average.

 

Valuation

Shares are now trading at 12x consensus 2010 EPS estimates. This is a discount to the relative valuations of their peer group. Despite the recent rally, eBay continues to trade well below the valuation levels of their peers. However, with an improving retail environment going into 2010, we expect that Wall Street will be increasing their earnings estimates for eBay which should benefit the stock price.

 

Recommendation: Buy with a $23 price target.

 

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