Online auctioneer eBay (Nasdaq: EBAY) released third-quarter earnings after the bell today (Wednesday).
Here's what you need to know - and how to play eBay stock now:
EBAY stock: Shares dropped nearly 4% after hours, and they slumped all day ahead of release. As of 3:30 pm EDT, EBAY stock was down 1.56% to $49.80 a share. But then again, Wednesday was an all-around rough day for markets. The S&P 500 turned negative for the year, the Dow fell by as much as 460 points, and the 10-year Treasury yield hit a 16-month low.
Earnings beat, revenue miss: The company topped analysts' estimated earnings per share (EPS) of $0.67 by $0.01, up from $0.64 the same quarter last year. But eBay fell short in sales. Revenue came in at $4.35 billion, $1 billion under projections. Revenue was $3.89 billion the same quarter last year.
Disappointing guidance: EBay said it expects Q4 earnings to come in between $0.88 to $0.91 a share, and revenue of between $4.85 billion to $4.95 billion. That's below estimates for $0.91 a share on sales of $5.16 billion.
The PayPal factor: On Sept. 30, eBay said it will spin off its PayPal unit into a separate, publicly traded company in the latter half of 2015 - an idea originally proposed by activist investor Carl Icahn, who has a 2.5% stake in eBay. That puts pressure on eBay's Marketplace unit. You see, PayPal made $2 billion in revenue this quarter, nearly that of Marketplace's $2.2 billion. And PayPal's growth dwarfed eBay's. Net Payment Volume (NPV) for PayPal was up 29%, compared to Marketplace's gross merchandise volume growth of 9%. Here's what eBay had to say about the upcoming spin-off in earnings today:
"Rapidly changing competitive environments in commerce and payments underscore the opportunities for eBay and PayPal, and highlight how each business will benefit from the focus and agility of being an independent company," eBay president and Chief Executive Officer John Donahoe said in a statement. "As we prepare to separate eBay and PayPal in 2015, our teams are focused on strong execution to ensure each business is set up for long-term success."
Security breach fallout: On May 21, eBay revealed that hackers broke into its records in one of the largest online security breaches in U.S. history. The passwords of 145 million subscribers were stolen. Then in late September, BBC reported that eBay users may have been exposed to malware via a design default on the website. Cybersecurity weighed on eBay's Q2, and the trend continued with the revenue miss today.
Stiff competition: Main eBay rival com (Nasdaq: AMZN) has upped its game. AMZN's August same-store sales (SSS) came in at 45.1% - nearly four times the growth of the industry average. EBAY's was 5.9%. That's the lowest SSS result for the company since February 2011, and well below the e-commerce growth rate. Additionally, analysts have Amazon's growth rate at 42%, compared to eBay's 12.1%.
Money Morning's bottom line: There are two takeaways here.First, if you're interested in buying PayPal, investing in eBay stock right now has an advantage.
"PayPal's a tax-free dividend right now. If you want to get PayPal now as a special dividend, tax free, you're going to want to get into eBay before the spin-off," Money Morning Defense & Tech Specialist Michael A. Robinson said earlier this month.
Second, as PayPal exits, eBay needs to show it's got a clear strategy in place for the Marketplace unit. That means evolving into a mature e-commerce company. Watch for moves like big-name tech partnerships, a stock buyback, and the introduction of bitcoins as payment in coming months.
Here at Money Morning, we believe tech investments are an essential step in wealth building. The sector creates some of the richest investors - and continues to get more lucrative. It's no surprise that Ebola stocks are the hot topic in tech right now. A number of companies are racing to find a treatment, and investors are piling in. But here's what you need to know about them...