Earnings preview: Q3 an acid test as eBay seeks to shun mediocrity

For long, eBay (EBAY) has remained a laggard in the highly competitive e-commerce space, struggling to keep pace with its mightier rivals like Amazon (AMZN) and Walmart (WMT).  The company’s stock hit a two-year low last week when the bearish sentiment among investors reached a peak.

The San Jose, California-based e-tailer will be unveiling its third-quarter numbers on October 30 after the closing bell. Despite the muted sentiment, analysts expect earnings to grow about 15% annually to $0.55 per share on revenues of $2.66 billion. Moreover, the latest update from analysts hints at a beat. The market’s reaction to the report will depend a lot on the management’s outlook for the remainder of the year.

Incidentally, shareholders were disappointed by the weak revenue guidance included in the second-quarter report, which triggered a selloff despite the better-than-expected earnings. Adjusted earnings jumped 18% to $0.53 per share in the June quarter when revenues advanced 9% to $2.6 billion. The global user base ticked up 4% to 175 million.

Recently, leading rating agencies including Bank of America Merrill Lynch and RBC Capital Markets downgraded eBay and lowered their price target on it, with the latter relegating the stock to Sector Perform. The main areas where the company is clearly lacking are technology, logistics and brands.

Also see: eBay Q2 2018 earnings conference call transcript

Nevertheless, the management is waking up to the pressing issue before it’s too late. Reports suggest a strategy shift has already started gathering momentum with focus on cost-cutting. The matter is likely to find a mention in the post-earnings conference call next week.

The immediate measures include a new marketing strategy to ramp up growth and more intense advertising campaigns. That would hopefully pump a new vigor into the company’s stagnant subscriber base and volume growth, thereby helping it take advantage of the positive customer sentiment and remain in the e-commerce race.

eBay stock falls on weak guidance, despite Q2 earnings beat

Amazon this week reported strong earnings growth for the third quarter. However, the company’s unimpressive sales performance and weak guidance were not well received by investors. Walmart will be releasing results for its most recent quarter on November 15 before the opening bell.

Shares of eBay fell 25% over the past one year and 31% since the beginning of the year. The stock traded sharply lower throughout Friday’s regular session.

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