Does Ebay Have a Bright Future?

With shares of eBay (NASDAQ:EBAY) trading around $55, is EBAY an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Ebay provides online platforms, tools, and services to help individuals and merchants with online and mobile commerce in the U.S. and around the world. Its marketplaces segment operates e-commerce platform eBay.com, and vertical shopping sites. The company operates through three segments: Marketplaces, Payments, and GSI. Ultimately, through its tools and platforms, eBay assists individuals and merchants around the globe engage in online and mobile commerce.

Americans still buy 90 percent of their purchases offline, but eBay sees great opportunity in the convergence of online and offline. As reported in Sunday’s New York Times magazine story “Buy It Now,” eBay is no longer the online auction house of old. Under the guidance of chief executive John Donahoe, the company has developed technology partnerships with big retailers like Home Depot (NYSE:HD), Macy’s (NYSE:M), Toys ”R” Us and Target (NYSE:TGT) and expanded eBay’s online marketplace to include returnable goods at fixed prices. The company has also made 34 acquisitions over the last five years and sees a future in which the digital wallet plays a central role.

T = Technicals on the Stock Chart Are Strong

Ebay stock has seen positive progress in recent years. The stock is currently surging higher and looks set to continue this path. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Ebay is trading above its rising key averages, which signal neutral to bullish price action in the near-term.

EBAY

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Ebay options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Ebay options

27.26%

40%

38%

What does this mean? This means that investors or traders are buying a significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

January Options

Flat

Average

February Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Ebay’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Ebay look like and more importantly, how did the markets like these numbers?

2013 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

16.36%

-7.55%

15.91%

-62.10%

Revenue Growth (Y-O-Y)

14.34%

14.10%

14.37%

18.14%

Earnings Reaction

-3.99%

-6.72%

-5.84%

2.40%

Ebay has seen mixed earnings and increasing revenue figures over the last four quarters. From these numbers, the markets have been pleased with Ebay’s recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

How has Ebay stock done relative to its peers, Amazon (NASDAQ:AMZN), Overstock (NASDAQ:OSTK), Mercadolibre (NASDAQ:MELI), and sector?

eBay

Amazon

Overstock

Mercadolibre

Sector

Year-to-Date Return

7.46%

54.92%

112.80%

36.31%

33.89%

Ebay has been a poor relative performer, year-to-date.

Conclusion

Ebay is an established company that has made a name for itself pioneering internet commerce. Reported in Sunday’s New York Times magazine story “Buy It Now,” eBay is no longer the online auction house of old. The stock has moved higher in recent years and is currently surging higher. Over the last four quarters, earnings have been mixed while revenues have been rising which has left investors pleased. Relative to its peers and sector, eBay has been a weak year-to-date performer. Look for Ebay to OUTPERFORM.

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