Earnings Preview: Low valuation makes eBay stock a safe investment

For most e-commerce companies, business growth depends a lot on their ability to fight against Amazon (AMZN) effectively, and eBay (EBAY) is no different. Currently, the California-based online marketplace is busy rolling out heavy discounts on its products to distract customers from the Prime Day sales.

When the company reports its second-quarter results on Wednesday after the market closes, analysts expect earnings of $0.39 per share, representing a 15% growth from last year.

eBay, which is often touted as the next Amazon, has been witnessing a stable increase in the number of active buyers, though the growth rate decelerated slightly in the most recent quarter due to seasonal factors. It is estimated that a significant number of active buyers will be added in the second quarter, lifting the total number to 173 million.

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In the recent quarters, both the business divisions – Marketing and Transaction Services – delivered exceptionally strong performance. That trend, marked by the consistent uptrend in the Classifieds and StubHub sub-segments, is expected to continue in the coming quarters.

This time, the expectation for revenue is very high, considering the management’s aggressive efforts to enhance customer experience. Meanwhile, the rising marketing and product development costs and their potential impact on margins are a cause for concern.

eBay, which is often touted as the next Amazon, has been witnessing a stable increase in the number of active buyers

While operating margin remained under pressure from higher expenses in 2017, the downtrend eased towards the end of the year. Initial estimates indicate that eBay’s second-quarter earnings will benefit from the strong top-line performance and moderation in expense.

eBay has been lagging behind its competitors in the e-commerce market, both in the US and abroad. Going forward, it is crucial for the company to come up with new strategies to tackle competition. Also, its excessive reliance on markets outside the US makes the company susceptible to a potential economic slowdown in emerging markets.

In the first quarter, the company reported a 9% growth in adjusted earnings to $0.53 per share, aided by a 12% revenue growth. Meanwhile, unadjusted earnings dropped sharply to $0.40 per share, hurt by one-time costs.

This year, it has been a rollercoaster ride for eBay shares, which jumped to a record high in February but retreated later. The stock closed traded slightly lower in the early hours of Tuesday’s session.

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