Last Wednesday, the stock of e-commerce giant eBay Inc. (NASDAQ: EBAY) fell sharply despite reporting better-than-anticipated fiscal 2017 third-quarter revenue. The Q3 earnings were in line with the Consensus estimate. Investors punished the stock for issuing unimpressive fourth-quarter guidance. Still, the stock managed to cover most of the lost ground last Friday to close at $37.61. We expect the stock of eBay to rally further in the days to come due to the facts provided underneath.
The San Jose, California-based company reported a third-quarter net income of $523 million, or $0.48 per share, on revenues of $2.409 billion. That compares with a net income of $413 million, or $0.36 per share, on revenues of $2.217 billion in the corresponding quarter of 2016. The Wall Street analysts had expected earnings of $0.48 per share on revenues of $2.36 billion.
Active buyers at the end of third-quarter were 168 million, up 8 million from 160 million last year.
To improve search relevancy and conversion rates, eBay continues to invest in its online marketplace. The structured data initiative, as it is referred to, seems to be working well in boosting the gross merchandise volume (GMV). eBay reported an increase in Q3 2017 GMV (marketplace) to $20.52 billion, from $18.905 billion in the similar quarter of 2016. The online ticket exchange Stubhub reported gross merchandise volume of $1.162 billion, up $20 million from $1.142 billion in the year-ago period. Classified ads revenue increased 19% y-o-y to $235 million.
Cash and cash equivalents at the end of September 2017 was $1.760 billion. eBay generated an operating cash flow of $877 million and free cash flow from continuing operations of $720 million. During the quarter, the company repurchased 25 million shares worth $907 million, and $2.6 billion remains under the existing share repurchase program.
Despite posting strong results, eBay issued unimpressive guidance. The company said it expects non-GAAP earnings of between $0.57 and $0.59 per share during the fourth quarter. The Q4 revenues are expected in the range of $2.58 billion to $2.62 billion. The Street Consensus is earnings of $0.60 per share on revenues of $2.58 billion. As can be understood, the main reason for the weakness that was seen in the stock price was due to lackluster Q4 guidance.
However, the company has clarified that the gross merchandise volume in the marketplace will continue to grow and the fourth-quarter performance is expected to be affected only because of the headwinds at StubHub and the length of the Thanksgiving holiday in South Korea. Thus, we anticipate the stock to undergo a bullish reversal in the week ahead.
Technically, the stock has bounced off the support at 36.10. The accumulation indicator is ascending, while the ultimate oscillator is moving above the reading of 50. Thus, we expect further northward movement in the stock.
To gain from the current uptrend, we wish to invest in a call option valid until November 1st. A strike price of about $36.50 will limit the risk involved in the trade.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
