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.

The Future Appears Cloudy for eBay

ebay

Q2 Estimates & Target

Here are my estimates for eBay’s Q2:

Q2 Revenue:  $2.30 Bil

Q2 EPS:  $0.39

Income Statement
Three months ended June 30, 2010
Revenue	$2,304,524
Cost of Revenue	$532,086
Gross Margin	$1,772,439
Operating Expenses:
R&D	$204,357
S&M	$501,954
G&A	$297,544
Provision for Loan Loss	$108,313
Amortization	$65,215
Restructuring	$1,278
Total	$1,178,660
Income from Operations	$593,779
Interest Income	$16,962
Income before Taxes	$610,741
Provision for Income Taxes	-$105,268
Net Income	$505,473
EPS	$0.39

Current Street consensus has second-quarter revenue and EPS at $2.20 Bil and $0.40, respectively.  Once again, my quarterly predictions are mixed, with revenue of $2.30 Bil above The Street’s consensus, while EPS of $0.39 is below. 

Price Target!

1 Year Target  =  $23.11

The average price 1-year price target on eBay’s stock is currently $28.30—my estimate is $5 lower.   In reaching the target of $23.11, I first needed to find the stock’s multiple.  I took the current trading price of $26.40 and divided it by the sum of the last three quarterly EPS numbers and my current Q1 estimate of $0.39.  This gave me a Price-to-Earnings ratio of 13.68.  The next step involved estimating all four quarterly EPS figures for 2010 (Q1-Q4) to arrive at total forward-year earnings of $1.69/share, or $0.02 above analysts' estimates.  Multiplying the P/E of 13.68 by the 2010 earnings estimate of $1.69/share yields the price target of $23.11.

Recommended Position

As a result of the following two factors, I am initiating a HOLD rating on eBay’s stock:

1)      Management’s inability to rein in costs and

2)      Uncertainty over the synergistic potential of recently acquired business units.

Tomorrow afternoon I’ll be posting a recap of eBay’s earnings report, comparing actual earnings to mine and The Street’s estimates.

If you like what you’ve read, be sure to leave me a comment!

Don’t forget to click “Follow” to the right of this post!

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.

Ebay's First Quarter Estimates

ebay

Q1 Earnings Estimates

Here are the long-awaited first quarter estimates for Ebay…

Q1 Revenue:  $2.25 Bil

Q1 EPS:  $0.39

Income Statement
Three months ended March 31, 2010
Revenue	$2,249,562
Cost of Revenue	$519,132
Gross Margin	$1,730,430
Operating Expenses:
R&D	$199,483
S&M	$489,982
G&A	$290,448
Provision for Loan Loss	$105,729
Amortization	$63,660
Restructuring	$1,250
Total	$1,150,552
Income from Operations	$579,878
Interest Income	$24,836
Income before Taxes	$604,714
Provision for Income Taxes	-$102,801
Net Income	$501,913
Shares Outstanding	1,300,000
EPS	$0.39

Current Street consensus is for revenue to come in at $2.18 Bil and EPS at $0.41.  Strangely enough, my estimates come in higher on revenue and lower on EPS.  I believe that the discrepancies are occurring as a result of The Street discounting the overall economic rebound that is taking place, while being too optimistic when it comes to Ebay’s cost control.  We’ve seen over the past two years their costs rise as a percentage of total revenue.  While this phenomenon has been offset lately by the sale of assets like Skype, I still see room for improvement.  There are a lot of great things taking place within the company.  They have completed multiple mergers and acquisitions (M&A) over the past year and once these additions settle in, there will definitely be some upside movement in revenue. 

In the past, I’ve always posted an Accuracy Table showing the different forms of linear regression that have been tested in the pursuit of an accurate revenue estimate.  As can be seen from the below table, there were actually three different types (in yellow) of regression that came close to predicting Ebay’s Q4 revenue figure.  Therefore, these three models were used to create my current revenue estimate of $2.25 Bil.

Accuracy
Model	Prediction	Percent Err.	W/ St. Err.	Percent Err.	R^2	Ad R^2
First-Order	$2,367,011.9	0.17%	$2,518,595	-6.23%	76.0%	74.1%
CFO	$2,286,900.3	3.54%	$2,369,763	0.05%	93.4%	92.3%
Deasonal	$2,421,829	-2.15%	$2,589,734	-9.23%	71.1%	68.8%
Dummy	$2,447,334	-3.22%	$2,612,970	-10.21%	77.9%	69.1%
Lagged	$2,241,638	5.45%	$2,376,888	-0.25%	42.3%	27.8%
		Actual Dec-2009 Sales
		$2,370,932

This post is just a taste of what is to come over the next 24 hours.  Next up: 

1)      Q2 Revenue

2)      Q2 EPS   

3)      Price Target

If you like what you’ve read and are curious what my next estimates are for Ebay, Amazon, and the many others this earnings season, be sure to click “Follow” to the right of this post!

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.