MorningWord 10/14/13: EBAY will report their Q3 earnings Wednesday after the close. The options market is implying about a 5% move following the results, which is essentially inline with the 4 qtr avg move and shy of the 8 qtr avg move of about 6.4%. IN a year that has witnessed a resurgence in a speculative appetite for Net stocks, EBAY’s 6.6% ytd gains seem fairly disappointing when you consider the stock trades at 17x next year’s earnings that analysts expect to grow 18%, and 14.5x 2015 earnings expected to grow at 17%.
To put EBAY’s under-performance in some context, it’s not just against all those new-fangled social media stocks, but also vs the Web 1.o stocks like AMZN & GOOG up 23% ytd, PCLN & YHOO up 62% and 71% respectively.
I spent most of this year scratching my head as to EBAY’s lack of participation. FB’s nearly 120% gains since the 2013 lows, gaining nearly as much in market cap as all of EBAY, probably has a lot to due with it. The money has just been going to other places, and while EBAY appears to be very cheap on a PE to Growth metric (trading at 17x next years expected earnings growth rate of 18%), it appears that tech investors would rather pay up for growth rates that are likely unsustainable.
While this may look a tad enticing, Sanford Bernstein analyst Carlos Kirjner (who rates the shares a buy with a $66 12 month price target) suggests in a quarterly preview dated Oct 10th that:
3Q13 will be important for eBay. Either the results and guidance will confirm the company’s ability to deliver on is guidance with a meaningful acceleration in 2H13, which should carry into 2014, or we may see the company lower annual guidance, or maintain it but just squeeze by on EPS by cutting investment, which will call into question the long term sustainability of its growth.
Investors have an insatiable appetite for growth, and FB is likely to continue to work as long as they are able to put up eye-popping mobile ad growth (which will most definitely decelerate meaningfully in the next couple quarters – watch out below when that happens), but EBAY’s slow and steady Marketplace and PayPal just don’t have the Sex appeal at the moment.
If EBAY’s Q3 comes off without a hitch, and the forward guidance remains intact then it may end up being one of the great opportunities to buy growth at a reasonable price in this entire market. We will take a closer look as we get nearer their print Wednesday evening.