Is EBay Enticing After Recent News?

With shares of EBay (NASDAQ:EBAY) trading around $53, 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.

Online commerce site eBay’s PayPal has reportedly filed a patent application that hints to a possible launch of its own virtual currency. The patent application proposes secure tokens that would let people buy products without creating a payment provider account. According to Mashable, the patent filing states that the recipient can use the token to purchase a product using a checkout though the payment provider, but won’t require creating the user’s own payment provider account. The application states that the tokens would be for giving gifts, but in theory, they could serve as a currency that can be used for purchases outside of eBay and PayPal and would be a competitor to Bitcoin, dogecoin, and litecoin, among others. PayPal president David Marcus said that he doesn’t think the proposed token would be used as a currency yet because its pricing fluctuates too much for practical use.

T = Technicals on the Stock Chart Are Strong

Ebay stock has seen positive progress in recent years. The stock is currently trading mid range for the year. 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

29.99%

86%

83%

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

Put IV Skew

Call IV Skew

February Options

Flat

Average

March 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 very 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 Increasing 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 = Excellent 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

-1.17%

1.24%

-6.77%

-3.10%

-3.45%

Ebay has been a relative performance leader, year-to-date.

Conclusion

Ebay is an established company that has made a name for itself pioneering internet commerce. The company’s PayPal has reportedly filed a patent application that hints to a possible launch of its own virtual currency. The stock has moved higher in recent years and is currently trading mid range. 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 relative year-to-date performance leader. Look for Ebay to OUTPERFORM.

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