Internet commerce company eBay Inc (ticker: EBAY) saw its stock fall more than 3 percent on Thursday after the company forecasted a weaker-than-expected second quarter. However, the long-term bullish case for EBAY stock remains intact.
The company reported first-quarter earnings on Wednesday that topped consensus analyst expectations, with non-GAAP earnings per share of 49 cents and revenue of $2.2 billion. Analysts were expecting EPS of 48 cents and revenue of $2.1 billion.
The stock fell because the company reported expected EPS of 43 to 45 cents in the second quarter, while analysts were expecting EPS of 47 cents.
Despite the initial market sell-off, Benchmark analyst Daniel Kurnos says there were plenty of positive takeaways from eBay’s first-quarter report.
“The additions of product reviews, top-rated products and a new home page, coupled with the new stable [business-to-customer] tools … has given management confidence in pushing the advertising pace earlier than anticipated,” Kurnos says.
The company’s decision to focus on high-inventory resellers, improving its search features and redesigning specific categories could drive revenue growth in years ahead.
In addition, Kurnos says eBay maintains a pristine balance sheet. Relatively low debt levels could make the company a potential merger candidate, especially for a foreign company looking to make a splash in the U.S. e-commerce market.
In addition to more than $6 billion in working capital, Benchmark forecasts eBay will generate $4.4 billion in free cash flow in 2017 and 2018.
“We suspect eBay will primarily use its cash to buy back shares and possibly initiate a dividend in addition to reinvesting in the business,” Kurnos says.
Monness Crespi Hardt says shareholders will be waiting for years before eBay’s latest branding efforts and platform redesigns could potentially produce meaningful revenue growth acceleration.
“We continue to appreciate the eBay brand and remain optimistic over the longer term,” analyst James Cakmak says. “At this time, however, we see insufficient upside to estimates to justify what we deem are somewhat lofty valuation metrics.”
Cakmak says…
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