What To Expect From eBay’s Q4 Results

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eBay (NASDAQ:EBAY) is scheduled to report its Q4 2015 financial results on Wednesday, January 27. According to early indications from ChannelAdvisor, eBay’s sales underperformed the broader e-commerce market during the three-month period ending December 2015. eBay’s average comparable sales in the holiday season (November 1 to December 31, 2015) reported growth of just 4.3% year-over-year (y-o-y) compared to over 20% for Amazon (NASDAQ:AMZN) and about 32% for Google Shopping (NASDAQ:GOOG). ((December 2015 ChannelAdvisor Same Store Sales (SSS) for eBay, Amazon, Google Shopping/PLA, CSE, Search and and Other Third Party Marketplaces., ChannelAdvisor, January 7, 2016)) In the upcoming Q4 2015 results, we expect eBay to report 5% y-o-y growth in active buyers to around 162 million, and expect the company’s gross merchandise value to decline by 2% y-o-y to around $21 billion. We also expect eBay’s Q4 top line to remain flat and meet the Reuters’ compiled consensus estimate of $2.32 billion.

eBay continues to face challenges from the security breach in 2014 and Google Panda update, which have impacted traffic on the company’s marketplaces over the past several quarters. It is also impacted by increasing competition in the online retail sector, from heavyweights such as Alibaba (NYSE:BABA) and Amazon, as well as newer companies in this market. Having said that, we are encouraged by the strategies being undertaken by the company’s management, including:  1) structuring data into catalogs (for search engine optimization); 2) diversifying traffic sources; 3) enhancing seller experience; and 4) trimming down the asset portfolio. We think these efforts will accelerate eBay’s growth and strengthen its demand over the long run. However, in the near future, we think eBay could continue to underperform the broader e-commerce market.

See our complete analysis for eBay

Early Indications Of Same Store Sales Look Weak

eBay’s comparable sales growth during the months of October, November and December 2015 came in at 3%, 5.6% and 0.8% respectively, according to data by ChannelAdvisor. This indicates that eBay’s performance remained below-par over the past few months and significantly under-performed the broader e-commerce growth rate of 13-14% (per comScore). The November jump and December slump were largely a result of Cyber Monday falling on November 30 instead of December 1, unlike 2014. If Cyber Monday 2015 is included in the December period (and December 31 is excluded to maintain 31-day period), eBay’s comparable sales for this adjusted December period improves to 4.3%, while Amazon’s would improve to over 20%.

This also suggests that last year’s security breach and the Google Panda Update most likely continued to weigh on active buyer growth during the final quarter. Apart from the above, FX headwinds are also expected to be evident in eBay’s earnings during the quarterly results.ebaySSS-1

ebaySSS-2

Watch Out For Updates On Recent Measures Taken By eBay 

Structuring Product Listings Into Catalogs: eBay is taking measures to structure data into a more user-friendly manner on its marketplaces. This also helps in improving the company’s ranking on search engines. Since this process requires manual efforts, we believe these measures could take a few more quarters to show results. By the end of September 2015,  around 28% of relevant listings had been covered by this update. It will be interesting to see how this progressed over the last quarter.

Focusing On Key Segments And Deal Categories: Rather than targeting the entire Internet audience, eBay wants to enhance its focus on certain key customer and deal segments in order to retain and grow its market share. We believe this strategy is essential as a number of competing websites have come up over the past few years that are targeted on niche product categories.

Diversifying Traffic Sources: Facing traffic-related challenges from search engines, eBay is also trying to boost its traffic from social platforms, such as Facebook, Pinterest, Instagram, Snapchat.

Improving Seller-Experience: A number of seller policies had created significant dissatisfaction among the seller community over the past few years. However, the company has recently been working towards improving the situation. In eBay’s upcoming earnings conference, it will be helpful to get an update on how sellers are responding to its recently launched “Seller Hub” (which helps provide in-depth analytics and product management tools for sellers) and its intermediate selling service “eBay Valet”.

We expect the company to continue to underperform the broader e-commerce market for the foreseeable future. This is based on the view that competition could continue to increase dramatically for eBay in the coming years, especially from Amazon, Alibaba and Google Shopping.

Our $29 price estimate for eBay’s stock represents around a 10% premium to the current market price.

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