Where Will Ebay Go Next?

With shares of eBay (NASDAQ:EBAY) trading around $54, 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.

Activist investor Carl Icahn is at it again. This time the 77-year-old mogul is pushing eBay to spin off PayPal into its own company. Icahn, who owns nearly 2 percent of eBay, is fighting to gain two seats on the company’s board to get his way. ”I think PayPal might be acquired and that would make it even better for shareholders,” Icahn told the Wall Street Journal. “And it’s a shame to have it held back by eBay and that I think is what’s happening.”

PayPal is a core part of eBay’s current business strategy and brings in nearly $7 billion in annual revenue. Although eBay has sold off successful business ventures in the past (Skype was sold to Silver Lake in 2009) they are strongly opposed to Icahn’s urgings. ”We believe that our collection of assets drive more growth and more success together, than apart,” said eBay CEO John Donahoe. EBay founder Pierre Omidyar and Marc Andreessen also took to Twitter to say they thought eBay and PayPal were best kept together.

T = Technicals on the Stock Chart Are Strong

Ebay stock has seen positive progress in recent years. The stock is currently trading sideways and may need time to stabilize before heading higher. 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

27.49%

23%

20%

What does this mean? This means that investors or traders are buying a minimal 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 minimal 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 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

14.32%

16.36%

-7.55%

15.91%

Revenue Growth (Y-O-Y)

13.45%

14.34%

14.10%

14.37%

Earnings Reaction

0.97%

-3.99%

-6.72%

-5.84%

Ebay has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have had conflicting feelings about 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

-0.36%

-1.05%

-7.37%

-10.80%

-1.92%

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. Carl Icahn is pushing eBay to spin off PayPal into its own company. The stock has moved higher in recent years, but is currently trading sideways. Over the last four quarters, earnings and revenues have been rising. However, investors have had conflicting feelings about recent earnings announcements. 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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