Preview: EBay Needs to Beat And Beat Big
This has been a raucous legal quarter for online auction house eBay : losing the Louis Vuitton counterfeit case in Europe, which it's appealing; winning the Tiffany counterfeit case in the US; filing suit against Craigslist, where it owns a 28 percent stake in that company; eBay stock has fallen about 13 percent since its last report; 20 percent since the beginning of the year.
But with a widespread view on the Street that the company should be able to beat quarterly estimates later today, and raise guidance for the rest of the year, eBay needs to do better today than merely "surprise" the Street. It needs to do something special to excite investors once again. It's just not clear the company has the chops to do that.
This time around, analysts expect eBay to report 41 cents a share on $2.17 billion for its second fiscal quarter. eBay itself offered a 39 - 41 cent range on up to $2.15 billion. So the Street is already at the high-end of guidance and most of the analysts I'm talking to already expect the company to exceed that by a penny or two.
Mark Mahaney's "cheat sheet" from Citigroup may provide the most helpful analysis: As far as revenue is concerned, anything under $2.17 billion would be perceived as negative; $2.17 billion to $2.22 billion would be neutral; and anything over $2.22 billion would be positive. He's looking for $2.21 billion, by the way.
On the earnings per share side, below 41 cents would be negative; 41 to 42 cents would be neutral; north of 42 cents would be positive, which is where Mahaney's at.
On the Guidance front, for full year 2008, less than $8.85 billion is bad; $8.85 billion to $9.01 billion is OK; and better than $9.01 billion would be good. Trouble for eBay, as far as Mahaney is concerned, is that he's already $150 million above that. Mahaney's at $1.74 in 2008 earnings per share. Street revenue consensus is at $9.01 billion. So eBay's got its work cut out for it if it wants to impress some of those analysts on the high end.
Other key metrics we always focus on include Gross Merchandise Volume in both the US and internationally, where most on the Street are around 7 percent and 9 percent growth respectively. Listings should come in around 680 million or better. Mahaney's looking for 682 million, though points out that anything above 695 million would be a positive.
Bottom line for Mahaney, and others: a slight beat and raise quarter with no catalyst for near-term excitement. Which is unfortunate since "beat and raise" quarters are supposed to be good news for companies. Problem for eBay is that the auction market is fairly mature nowadays, and while online shopping continues to gain momentum, eBay runs the risk of ceding that growth to companies like Amazon.comand other specialty retailers.
Still, Gabelli finds eBay attractive, especially with what could be a sustainable 10 percent to 15 percent growth rate; same goes with Jefferies, which anticipates a 12 percent, year-over-year pop in the company's Gross Merchandise Volume, and Bank of America . The conference call also will be key today, with analysts trying to read the tea leaves on macro-economic conditions in key eBay geographies outside the US.
The trouble for eBay, as CEO John Donahoe continues to implement fee structure changes -- which might anger some in the eBay PowerSeller community, but not enough of them to do any, real, meaningful damage to earnings -- is that the company risks becoming a bore: A nice financial place for your money to visit, and maybe even stay for awhile, but hardly a place you'd want to stay for very long. It's been this way for some time; the pressure's on Donahoe to do something about it.
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