Retail

A Second Look at eBay Earnings: Not So Bad, But ...

eBay Inc. (NASDAQ: EBAY) reported third-quarter 2014 results after the markets closed Wednesday. The e-commerce giant posted $0.68 in earnings per share and $4.35 billion in revenue, against Thomson Reuters estimates of $0.67 in earnings per share and $4.37 billion in revenue. In the same quarter last year, eBay reported $0.64 in earnings per share and revenue of $3.89 billion.

The company gave guidance for the fourth quarter for revenues of $4.85 billion to $4.95 billion and earnings per share in the range of $0.88 to $0.91. The revenue outlook is considerably short of the current consensus estimate of $5.16 billion. The consensus estimate is $0.91 in earnings per share, at the top of eBay’s new range.

On the year, eBay cut its revenue guidance from a range of $18.0 billion to $18.5 billion to $17.85 billion to $17.5 billion. The consensus estimate on full-year revenues is $18.15 billion, and the lowered guidance dragged the share price down in premarket trading.

The company had previously already made an announcement that it will part ways with its mobile payment business PayPal and split into separate companies next year. The split was at least partially the work of activist investor Carl Icahn, who had pushed for the deal since January. John Donahoe, eBay CEO, will not serve as CEO of either company and will in fact step down but remain on the board of either or both companies.

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The “new” eBay will be run by Devin Wenig, currently president of eBay Marketplaces. PayPal will get its new CEO, Dan Schulman, from American Express Co. (NYSE: AXP), where he is currently president of that company’s enterprise growth group.

Revenue for PayPal in the first quarter totaled $2 billion and it ended the quarter with 157 million active registered accounts, a jump of 14%. eBay’s Marketplaces revenues totaled $2.2 billion, and it added 3.4 million active buyers, up 13% to 152 million.

John Donahoe said:

Rapidly changing competitive environments in commerce and payments underscore the opportunities for eBay and PayPal, and highlight how each business will benefit from the focus and agility of being an independent company. … As we prepare to separate eBay and PayPal in 2015, our teams are focused on strong execution to ensure each business is set up for long-term success.

We haven’t seen a massive number of analyst calls as of yet, but eBay was downgraded to Sector Perform from Outperform and the price target was cut to $55 from $62 at RBC Capital Markets. Merrill Lynch maintained its Buy rating but lowered its price objective to $60 from $62.

Despite all the efforts of Icahn to carve out PayPal, eBay shares have listed lower and lower ever since the company finally capitulated.

eBay’s shares closed at $50.24 Wednesday. Its shares had a consensus analyst price target of $60.80 and a 52-week trading range of $48.06 to $59.70. Shares were down about 3% in Thursday’s premarket trading at $48.71.

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