eBay (EBAY) Beats the Street on Strong Holiday Sales

After the market close on Wednesday, online retail giant eBay (EBAY: Charts, News) posted both earnings and revenue that topped analysts' estimates for its fourth fiscal quarter. The company, best known as the pioneer of online auctions, posted adjusted earnings of 60 cents per share on revenue of $3.38 billion.

Earnings were adjusted to exclude profits reaped from Microsoft's (MSFT: Charts, News) $8.5 billion purchase of Skype. This marks a healthy 15% and 35% gain in earnings and revenue, respectively, over the prior year's fourth quarter. Analysts on average had expected 57 cents per share on revenue of $3.32 billion. The company attributed its strong earnings to the increasing strength of its PayPal electronic payments segment, strong holiday sales and a more aggressive marketing campaign directly aimed at primary rival Amazon (AMZN: Charts, News).


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Over the previous year, CEO John Donahoe increased marketing spending by 25% and upgraded eBay's aging technology to remain competitive with Amazon. Donahoe has also strengthened partnerships with large retailers, acquiring GSI Commerce for $1.9 billion in June in order to expand its variety of available products. Donahoe is also serving as interim president of eBay's highly valued PayPal division, following the recent departure of president Scott Thompson, who took over as CEO of Yahoo (YHOO: Charts, News) after the firing of Carol Bartz.

PayPal is being recognized as a threat to traditional credit card companies, such as Visa (V: Charts, News) or Mastercard (MA: Charts, News), due to the convenience of sending and receiving money by e-mail. At Paypal, which was the company's fastest growing business segment last quarter, revenue increased by 28% while registered users rose to 106.3 million. eBay's management is confident in PayPal's continuing growth prospects, estimating that PayPal's mobile payment volume alone will rise from $5 billion in 2011 to $7 billion in the coming year. PayPal has also inked a trial deal with Home Depot HD, allowing customers in the San Francisco Bay Area to use PayPal as a payment option at checkout. If this initiative proves successful, then PayPal may slowly evolve into a viable threat to credit card companies in brick and mortar stores as well. Total holiday e-commerce spending in the United States also increased by 15% over the previous year to a record $37.2 billion - a sign of the times, as many brick and mortar retailers have posted mediocre results.

Looking forward, eBay's guidance was mixed, predicting earnings between 50 to 51 cents per share on revenue between $3.05 to $3.15 billion. This was below the analyst consensus expectation of 54 cents per share on revenue of $3.16 billion. In addition, operating margins decreased slightly from 23.7% to 22.3% over the past year. The company attributed to the dip in margins to the four acquisitions it completed in 2011, as well as increased marketing expenses, which rose to $2.44 billion. Bearish analysts claim that Amazon, with its popular Kindle tablet serving as a front-end gateway to its paid content, boasts several advantages over eBay. Shares of Amazon have doubled over the past four years due to its aggressive growth initiatives, while eBay has remained unchanged. However, bullish analysts claim that there is room for two e-commerce giants on the Internet, and that the two companies focus on two different customer bases - with Amazon focused on new products and eBay focused on used and refurbished ones.

With a forward P/E of 11.85 and a PEG ratio of 1.03, shares of eBay look strong on a technical basis. The company remains at the forefront of the most attractive frontier of retail, e-commerce, and remains protected from the risks that brick-and-mortar stores are constantly subject to - such as excess inventory, weak same-store sales and real estate costs.

Other News About EBAY
eBay Inc. Reports Strong Fourth Quarter and Full Year 2011 Results
eBay posts strong earnings, impressing investors.
eBay Has its Flaws
Bears still offer plenty of reasons to sell eBay short. Other Stocks in the News
Bank of America reverses loss and earns $2 billion
Bank of America surprises analysts and actually posts a profit.
Disney Going Full-Bore in January
Disney starts aggressive expansion plans throughout January.

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Published on Jan 20, 2012
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

Copyrighted 2016. Content published with author's permission.

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