eBay Turns Bullish on Impressive Revamp Measures

eBay Turns Bullish on Impressive Revamp Measures
March 16, 2016

 
The shares of eBay Inc (NASDAQ:EBAY) hit a 52-week low of $21.52 in February, following a fiscal 2016 guidance, which missed analyst estimates. Since then, eBay’s share price continues to hover around the $25 levels. There are three main reasons for the poor performance of the stock.

Firstly, the company derives almost 60% of its revenue from overseas. Thus, performance continues to suffer because of the strong US dollar. The 3% decline in the top line growth is actually better considering a minimum of a 5% decline in the exchange rate of the Euro, Pound and the Aussie against the US dollar.

Secondly, eBay suffered a cyber attack in 2015. As a result, the company’s 145 million clients were forced to change their password settings. The hacking event considerably dampened the earnings of eBay.

Thirdly, the Panda algorithm of Google (NASDAQ:GOOG) had a negative effect on eBay’s sales. The company’s website lost its place in the search results. However, the investors are optimistic about the future prospects of the e-commerce giant because of the following reasons.

The company has successfully taken steps to safeguard the private data of clients, improve SEO and provide new features in their application to draw clients to their website. The measures taken by eBay had resulted in a 5% increase (y-o-y) in the number of active clients to 162 million as of fourth-quarter of fiscal 2015. During the fourth-quarter, the company also added 79 million unique products to its catalogue. This is expected to create a positive impact on the revenue.

In the fourth-quarter of fiscal 2015, the company recorded a 10% sequential increase in revenue to $2.32 billion. The quarterly results of fiscal 2014 are not comparable as it includes the results of PayPal. However, the net income during the fourth-quarter declined to $477 million or $0.40 per share, from $539 million or $0.45 per share in the third-quarter of fiscal 2015.

For the fiscal 2015, the company reported revenue of $8.5 billion and net income of $1.72 billion or $1.42 per share.

The company has an impressive operating margin of 25.6%. Furthermore, the free cash flow of eBay was $3.365 billion in the fiscal 2015. The debt to equity ratio of 1.03 is nominal. The forward PE ratio of eBay is only 11.9, compared to the industry standard of 30. Thus, the share price of eBay is fundamentally poised for an uptrend in the coming weeks.

Technically, hurdle exists for eBay at 24.30. The RSI indicator has crossed above the 50 level, which indicates that the share price is firmly in an uptrend. A crossover above the 24.30 level will take the stock to 26.50 or even 29.

Ebay - Technical Analysis - 16th May 2016

So, it will be prudent on the part of a binary options trader to purchase a call option contract. A strike price of about 26 would increase the success rate. Finally, the expiry should be around mid-April.

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Andrew Wright

Prior to founding tradersasset.com in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.


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