Is eBay a Buy After a Recent Announcement?

With shares of eBay (NASDAQ:EBAY) trading around $51, 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.

Ebay shares dropped in premarket trading even though the company’s earnings for the third quarter beat analyst forecasts, as eBay gave softer-than-expected guidance, citing that the e-commerce market in the U.S. will weaken slightly in the fourth quarter and maintaining a “cautious outlook for the holiday season.” EPS came in at 64 cents, beating expectations, and revenue grew 14 percent to $3.89 billion but missed forecasts. PayPal has continued to show strong growth, with sales increasing 19 percent in the third quarter, and that growth will be aided in the future by eBay’s recent $800 million acquisition of Braintree Payment Solutions.

T = Technicals on the Stock Chart Are Mixed

Ebay stock has seen positive progress in recent years. The stock has struggled this year as it continues to pullback from nearly hitting all-time highs. 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 below its key averages, which signal neutral to bearish 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

30.78%

3%

2%

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

Put IV Skew

Call IV Skew

November Options

Steep

Average

December Options

Steep

Average

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

-4.00%*

-6.72%

-5.84%

2.40%

Ebay has seen mixed earnings and rising revenue figures over the last four quarters. From these numbers, the markets have expected more from eBay’s recent earnings announcements.

* As of this writing

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

1.16%

23.41%

77.99%

74.82%

45.34%

Ebay has been a weak performer, year-to-date.

Conclusion

Ebay is an established company that has made a name for itself pioneering internet commerce. A recent earnings announcement has investors disappointed with the company. The stock has moved higher in recent years but is now pulling back as it digests gains from a recent run. Over the last four quarters, earnings have been mixed while revenues have been rising which has left investors to expect more from the company. Relative to its peers and sector, eBay has been a weak year-to-date performer. WAIT AND SEE what eBay does this coming quarter.

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