Ebay Shares Struggle for Direction

Ebay's second-quarter earnings report has just hit the wires and the stock is virtually neutral in after-hours trading. Revenue was above analysts' consensus at $2.22 Bil, while EPS came in at $0.40 per share. I published my estimates of $0.41 in earnings and $2.18 Bil in revenue for the online auction house on April 23.  This is in comparison to analysts’ consensus of $0.38 in earnings and $2.17 Bil in revenue.  Once again, it appears that Smithson Equity Analysis outperformed the big Wall Street research firms.

Ebay’s Q2 Earnings Report

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Disclaimer:
· At the time of publication, I do not have any open positions.
· Opinions, estimates and projections contained in this report are of the author as of the date published and are subject to change without notice.
· This report is not, nor should it be construed as, an offer to sell or solicitation of an offer to buy any securities.
· Unless otherwise noted, all research reports provide information of a general nature and do not address the circumstances of any particular investor.
· It is important to do your own due diligence on any position you enter.

What Lies Ahead...

When I started this blog, I never expected to receive such an outpouring of support from so many unknown readers and followers. After nearly two months of projections and dissemination, statistics clearly show that more than 70% of the time, the estimates posted here have been closer to actual earnings than analysts' consensus.

So what's next? Well, throughout the month of June, I will be reassessing RIMM, GOOG, XOM, EBAY, KFT, and HPQ in order to make any necessary revisions for the upcoming quarter. Afterward, I will be posting new analysis and earnings estimates for many more U.S. companies. These may include such widely-traded stocks as MSFT, MCD, BA, INTC, AA, AMZN, CSCO, CAT, IBM, UTX, T, and WMT.

If you are not already a follower or an email subscriber, I encourage you to become one so you are alerted the moment a new post is published!


Disclaimer:
· Opinions, estimates and projections contained in this report are of the author as of the date published and are subject to change without notice.
· This report is not, nor should it be construed as, an offer to sell or solicitation of an offer to buy any securities.
· Unless otherwise noted, all research reports provide information of a general nature and do not address the circumstances of any particular investor.

1-Month Performance Report

Nearly a month ago I started this blog; I felt that I had the knowledge and capability to compete with big Wall Street analysts.  Over the past few weeks, the results of this experiment have far exceeded any of my expectations.  Time-and-again, I have seen my predictions prove more accurate than the Street’s consensus.  Since starting this blog, I have analyzed five very unique companies with operations ranging from oil and gas exploration to online advertising.  The results of my analyses compared to average analyst estimates are summarized in the table below.  Each yellow cell reveals the lowest percentage of error for the corresponding measure.  As is evidenced from the table, 69% of the time, my estimates are more accurate than the Street’s. 

So how can my analysis benefit you?  Those with the most accurate information are better able to maximize or protect their wealth by either buying undervalued stocks or selling overvalued ones.  The bottom line is this:  Information is King.

	Actual Results	Wall Street Estimates	% Error	Smithson's Estimates	% Error
Revenue	$11,318	$10,950	3.25%	$11,155	1.44%	Kraft
Q1 EPS	$0.49	$0.45	8.16%	$0.48	2.04%
Q1 EPS	$1.33	$1.41	-6.02%	$1.37	-3.01%	Exxon Mobil
Adj. Q1 EPS	$1.37	$1.41	-2.92%	$1.37	0.00%
Q1 Rev	$90.25	$96.41	-6.83%	$92.88	-2.91%
Q1 Rev	$2.20	$2.18	0.91%	$2.25	-2.27%	eBay
Q1 EPS	$0.42	$0.41	2.38%	$0.39	7.14%
Q2 Rev Guidance	$2.18	$2.20	-0.92%	$2.30	-5.50%
Q2 EPS Guidance	$0.38	$0.40	-5.26%	$0.39	-2.63%
Q1Revenue	$5,064	$4,950	2.25%	$5,161	-1.92%	Google
Q1 EPS	$6.76	$6.56	2.96%	$6.61	2.22%
Q4 Revenue	$4.08	$4.31	-5.64%	$4.35	-6.62%	Research in Motion
Q4 Gross Margin	45.7%	43.3%	5.25%	44.4%	2.84%
Q4 EPS	$1.27	$1.28	-0.79%	$1.34	-5.51%
Q1 Rev Guidance	$4.35	$4.33	0.46%	$4.36	-0.23%
Q1 EPS Guidance	$1.35	$1.22	9.63%	$1.29	4.44%
69% of the time, my estimates are closer to actual results than analysts' consensus!

The overwhelming success of this blog is not only measured by the accuracy of my projections, but also by the number of unique visits to the site.  After just shy of one month, several thousand unique visitors from all over the world have come to the site! 

I encourage each visitor to click the “Follow” button in the upper-right portion of the screen.  By doing so, you are able to catch all of my new posts as soon as they’re released!

Disclaimer:
· Opinions, estimates and projections contained in this report are of the author as of the date published and are subject to change without notice.
· This report is not, nor should it be construed as, an offer to sell or solicitation of an offer to buy any securities.
· Unless otherwise noted, all research reports provide information of a general nature and do not address the circumstances of any particular investor.

The Sun Will Always Rise

eBay Second-Quarter Revisions

Here they are folks:

 Q2 Revenue:  $2.18 Bil

Q2 EPS (Adj):  $0.41

A strange thing happened today while I was working on these revisions.  I took a look back at the regression models I created to predict Q1 revenue.  We now know that actual revenue came in at $2.20 Bil.  Generally, the process that I employ to arrive at my revenue estimates, is to create multiple regression models and then determine which one best predicted the prior quarter’s sales.  In the case of my Q1 estimate, I decided to use two variations of first-order linear regression and one form of autoregression.  The interesting phenomenon that I previously alluded to occurred when I averaged the predictions of each of the five models that I previously created—the result was $2.195 Bil, or a difference of less than one half of a single percent from the actual Q1 revenue!  Why I did not realize this earlier is beyond me.  However, the good news is that I feel very strongly about the above Q2 revenue estimate of $2.18 Bil.  I am also confident that Q2 EPS will come in at $0.41.

Here is a table showing the Q2 revenue predictions from each of the five models I created for eBay:

Q2 Revenue Estimates
Model	Prediction
First-Order	$2,210,700
FO-CFO	$2,210,700
Deasonal	$2,203,423
Dummy	$2,193,097
Lagged	$2,098,321
Average	$2,183,248

Here are my line-by-line estimates for the second quarter:

Income Statement
Three months ended June 30, 2010
Revenue	$2,183,248
Cost of Revenue	$613,531
Gross Margin	$1,569,717
Operating Expenses:
R&D	$199,463
S&M	$462,957
G&A	$270,101
Provision for Loan Loss	$100,987
Amortization	$60,428
Restructuring	$12,000
Total	$1,105,936
Income from Operations	$463,781
Interest Income	$6,011
Income before Taxes	$469,792
Provision for Income Taxes	-$91,166
Net Income	$378,626
Shares Outstanding	1,336,000
EPS	$0.28
Net Income (Adj)	$551,626
EPS (Adj)	$0.41

So what does this mean for the investors and traders of eBay’s stock?  It means that there is a good chance that next quarter’s revenue will come in about $0.02 higher than the upper range of management's forecast.  However, as we all know, the whisper numbers are what really move stocks after earnings, and I would not be surprised if the market factors in an EPS of $0.41 by the next earnings announcement.  Similarly, when I reworked my valuation model, I came up with virtually the same price target—$23.11.  Now, I’ve given the readers a lot of information here so let me sum it all up with a buy/hold/sell recommendation.  Given that the market has already factored in a 6% correction since the earnings announcement, I am reaffirming my HOLD recommendation.  This concludes my analysis of eBay.

I still hope to have the estimates for Texas Instruments up over the weekend.  The company will report earnings after the bell on Monday. 

If you like what you’ve been reading over the past few weeks, I implore you to click “FOLLOW” in the upper-right portion of your screen.  Similarly, I always encourage my readers to leave me a comment (even anonymously) anytime they have something to say.

P.S.  Don’t forget that the day before eBay reported earnings, I wrote a post entitled “The Future Appears Cloudy for eBay.”  If you had heeded this warning, you could have either sold your long shares or shorted the stock. 

EBAY Ownership

Author:   NO

Author’s Family:  NO

Disclaimer:
· Opinions, estimates and projections contained in this report are of the author as of the date published and are subject to change without notice.
· This report is not, nor should it be construed as, an offer to sell or solicitation of an offer to buy any securities.
· Unless otherwise noted, all research reports provide information of a general nature and do not address the circumstances of any particular investor.

Sad Day for eBay

eBay Reports First-Quarter Results

Q1 Revenue:  $2.20 Bil

Q1 EPS:  $0.42

Q2 Revenue Guidance:  $2.175 Bil (average)

Q2 EPS Guidance:  $0.38 (average) 

One of the biggest issues I faced when analyzing eBay, was wading through all of the adjustments and mergers and acquisitions (“M&A”) activity in order to pinpoint Q1 and Q2 earnings.  Today’s announcement placed Q1 EPS at $0.30 with Adjusted EPS at $0.42—this is a 40% correction!  EBay accountants are currently dealing with the chaos that occurs after a major unit is sold and new units are purchased.  This confusion is shared by the analysts. 

Today's earning report marks the first time that “The Street” has bested me.  While they may have been closer on a few more metrics, I was able to better predict Q2 EPS, which leads me to my next point.  Throughout the past few days, I did not hide my pessimism over eBay’s outlook.  In fact, the title of my last post was “The Future Appears Cloudy for eBay.”  As of this very moment, the market has had 40 minutes to digest this afternoon’s report and the stock is down 8% in after-hours trading.  Over the next day or two, I will revise my Q2 earnings estimates by inputting today’s data into the models, so be looking for that.

On a separate note, I have selected the next stock to analyze:  Texas Instruments (TXN)!  They will report earnings after the bell on Monday, April 26^th, so I will be posting my predictions over the weekend.  The analysis on this company should be pretty straightforward, unlike eBay.

So, to sum up my performance over the past three weeks, I have better predicted the overall earnings reports for both RIMM and Google, while marginally underperforming on eBay. 

If you like what you’ve read over the past few weeks, be sure to click “Follow” in the upper-right portion of your screen.  Also, comments are more than welcomed—they’re encouraged!

eBay Ownership

Author:   NO

Author’s Family:  NO

Disclaimer:
· Opinions, estimates and projections contained in this report are of the author as of the date published and are subject to change without notice.
· This report is not, nor should it be construed as, an offer to sell or solicitation of an offer to buy any securities.
· Unless otherwise noted, all research reports provide information of a general nature and do not address the circumstances of any particular investor.