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eBay (EBAY) to Report Q1 Earnings: Is a Surprise in Store?


eBay Inc. EBAY will report first-quarter 2017 earnings on Apr 19 after the bell.

The company has a Zacks Rank #3 (Hold) and an Earnings ESP of 0.00%, a combination that makes surprise prediction difficult. This is because, per our proven model, a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 to beat estimates. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

We don’t recommend Sell-rated stocks (Zacks Rank #4 or #5) going into the earnings announcement.

eBay’s surprise history has been quite impressive as the company beat estimates in two of the last four quarters and matched estimates on one occasion. Over the last one year, the stock has outperformed the Zacks Internet – Commerce industry. It has gained 36% compared with the industry’s gain of 35.8%.

Let’s see how things are shaping up for this announcement

What Happened in the Fourth Quarter

eBay’s fourth-quarter earnings missed the Zacks Consensus Estimate on both counts. However, revenues were up sequentially and year over year.

Revenue growth was driven by a strong holiday season and improvements in structured data, customer-to-customer (C2C) business and mobile platform. eBay added 2 million active buyers in the quarter taking the total to 167 million.

In the quarter, eBay’s customer-to-customer (C2C) business grew after nearly three years, driven by its efforts toward simplifying experience and tailoring price. The company also started integrating marketplace inventory into its Classified’s platforms.

eBay Inc. Price, Consensus and EPS Surprise

What We Are Watching

eBay continues to increase user engagement and satisfaction by driving traffic to its top-rated sellers. Although its growth rate has come down after PayPal’s spinoff, standalone eBay offers a convincing opportunity with a desirable marketplace format. It has no inventory risk, better margins, and greater capital efficiency than most retailers.

Numerous initiatives including structured data, application of artificial intelligence, enhancing mobile experience, increased use of social media to drive traffic, focus on a discovery-based user experience, category merchandising, and an easier listing process are tailwinds.

However, concerns remain in the form of increasing competition in the e-commerce and hardline retail market from companies like Amazon AMZN and Wal-Mart and deceleration of growth in the e-commerce market both domestically and internationally.

eBay’s increased investment toward overall platform technology and slower growth rate compared to its peers are also overhangs. Furthermore, eBay’s growth continues to suffer due to a weak world economy. The company is heavily dependent on countries outside the U.S for its transaction and Internet sales. Although the U.S. is flourishing, emerging economies are slowing down.

Summing Up

eBay’s unique capabilities backed by technological improvements give it an edge over its competitors. We remain positive about the pace of building a solid foundation of structured data and artificial intelligence, increasing personalizing capacities and enhancing mobile experience. However expected results may take some time to show up due to weak global economy, slow e-commerce growth and increasing competition.

Stocks That Warrant a Look

Here are some stocks that you may want to consider as our model shows these have the right combination of elements to post a positive earnings surprise:

KLA-Tencor Corporation KLAC, with an Earnings ESP of +2.60% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Applied Materials, Inc. AMAT, with an Earnings ESP of +1.32% and Zacks Rank #2.

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