RBC Capital Markets analysts Mark S. Mahaney, Andre Sequin, Brian Peak and Kevin Potterton rate eBay Inc (NASDAQ:EBAY) as Outperform as the e-commerce giant is set to report in-line fourth quarter earnings on Wednesday, 22nd Jaunary.


We expect eBay Inc (NASDAQ:EBAY) to report Q4 results on Wednesday January 22. We are looking for $4.55B in revenue and $0.81 in pro forma EPS. Our revenue and pro forma EPS estimates are largely inline with consensus of $4.56B and $0.80, respectively, and with company guidance. Also, we believe that the Street’s current expectation for 16% EPS growth in 2014 to $3.13 might be a tad aggressive. We think a conservative range of high-single-digit to mid-teens % EPS growth might be the most likely outcome.

Intra-quarter data points

1) Slightly negative comScore US web traffic trends – QTD Q4 US unique visitor growth was down 4% Y/Y, remaining flat vs. the 4% Y/Y decline seen in Q3, on a 1pt easier comp. Traffic to eBay Inc (NASDAQ:EBAY)’s main site (eBay.com) fell 5% Y/Y, also flat vs. Q3 – we believe the shift to mobile usage is a significant factor here, as the comScore data only track desktop traffic. 2) Negative channel advisor SSS data – eBay posted average SSS growth of 12% Y/Y in Q4, down from 19% in Q3 – implying a deceleration in Q4 – inline with our Q4 eBay US GMV Y/Y growth (exauto) estimate, which is projected to grow 12% Y/Y in Q4, down from 15% growth in Q3, on a 3pt tougher comp.

Key factors to focus on

In addition to the Q4 revenue and pro forma EPS results – as well as the Q1 and FY14 guide – we believe the key factors to focus on will be: 1) Marketplace GMV, revenue, and margin trends – We are looking for consistent 42% segment margins and 12% Y/Y growth in US GMV (ex-autos). 2) Payments TPV, revenue, and margin trends – We are looking for 24% segment margins and a continuation of mid-to-high 20%s Merchant Services TPV growth (ex-FX). 3) GSI revenue and margin trends – We are looking for 20% segment margins and 8% Y/Y segment revenue growth.

eBay’s valuation

Our price target is based on a 17x P/E multiple on our 2015 EPS estimate of $3.45. We continue to view the eBay Inc (NASDAQ:EBAY) core long thesis as intact – we still believe it has enough momentum in its current markets, growth potential in those markets, new investment initiatives in place, and execution competence to consistently deliver at least low-teens EPS growth. And that should provide a lot of valuation support here, with the shares trading at a 17x P/E. Broadly, eBAY presents as a unique combination of a secular growth cash cow businesses (marketplaces), a very strong growth solid margin business (online payments), an option play on hyper growth alternative payments (offline payments), with sustained shareholder focus (share repos).