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eBay Disappoints With Uninspiring Guidance

Online retailer eBay Inc. reported in-line third quarter earnings that failed to impress the market. In addition, the online auction house disappointed investors on its quarterly outlook. As a result, shares dived 7% in afterhours trading. The company struggles to convince the investment community that it has turned its business around to regain leadership in the online retail market.

eBay recorded a Q3 earnings-per-share of $0.45, where analyst consensus was $0.44 during the recent months. There wasn’t much enthusiasm among analysts anyway, with the most optimistic estimate standing at EPS of $0.46.

The top line was a notch better than analysts expected. Q3 revenue came in at @$2,217m and topped analyst consensus by 1.4%. The number was at the top end of the range of analysts’ estimates.

Nevertheless, the number of active buyers on the sites of eBay reached only 165 million, missing expectations of 166.5 million. The company seems to struggle attracting customers in a highly competitive market, where Amazon leads the pack and conventional, brick-and-mortar stores are adapting to online formats as well.

During this earnings season, a number of companies were rewarded for an improved outlook. eBay increased its guidance for Q4 as well. Q4 is obviously important due to the holiday season. The online retailer upped its EPS guidance from $0.52 to $0.54. However, this is exactly the same number as analyst consensus. What’s more, a couple of analyst expect more, with Q4 reaching as much as $0.58.

eBay upped its outlook on revenues as well. Where the company previously expected Q4 revenue to reach $2.36 billion, it now sees Q4 revenue reaching $2.41 billion. But again, right there were analysts anticipate the number to come in at.

Clearly, investors took the uninspiring numbers as a bad omen for eBay’s ability to catch up in the competitive retail market. But this doesn’t mean we should abandon hope. Remember, the company is still in a transition phase, tackling issues as improvement of search queries and brand image. eBay’s subsidiary stubHub seems to perform rather well, reporting a 31% increase in sales, reaching $261 million in Q3.

What’s more, since end of June, shares jumped by almost 50%. A temporarily correction could be healthy. From a technical perspective, investors should watch the support level that lies just below $30. There was also an island reversal this year, and a back test could also be a possibility. When eBay starts to close the gap, somewhat below the $29 level, then a bearish scenario will unfold. But until then, don’t get caught in temporarily earnings bearishness!

The author has no positions in eBay, nor plans to open a (long/short) position in the near term. There’s no business relation with eBay or its subsidiaries.