Source: PaxForex Premium Analytics Portal, Fundamental Insight
No doubt, eBay shareholders had a fantastic 2020, as stock prices comfortably outperformed the wider market during the pandemic-driven e-commerce boom. To be fair, companies like Amazon and Shopify did better. But eBay's nearly 40 percent jump in stock prices showed some big operational accomplishments and outperformed other big online businesses, including Walmart.
Investors will soon find out how well eBay has done in 2020, as we'll get a report for the fourth, holiday quarter in a couple of days. The success of those numbers, along with management's official outlook for 2021, will determine whether the stock will continue its winning streak in the new year.
Let's take a closer look at the company ahead of its fourth-quarter earnings report on Wednesday, Feb. 3, and what current and potential investors should pay attention to.
First, it's important to note that the main gauge of eBay's growth is the volume of goods flowing through its platform. The strong performance here was the basis for last year's jump in the stock. Volume was flat or declining in the quarters before the pandemic but rose more than 20 percent year-over-year as trading shifted to online channels beginning in late February.
This quarter's report will answer crucial questions about the sustainability of this price rally. Year-over-year volume growth slowed to 21% in the third quarter from 29% in the quarter that encompassed the most intense period of retail closures. For its part, management in late October had forecast growth in the low double-digit percentages. Nonetheless, eBay easily beat expectations for its last quarterly forecast, and investors are hoping for another spurt this week.
Other signs of healthy market share will show up in the expanding buyer pool and robust conversion rates for eBay's product pages. CEO Jamie Iannone is expected to comment on both of these metrics on Wednesday.
Secondly, eBay's asset-based operating model somewhat limits growth potential compared to Amazon, but the trade-off is higher profitability and impressive cash flow. Revenues more than doubled last quarter as operating margins rose due to a combination of higher sales, lower expenses, and higher merchant transaction fees.
Wall Street expects earnings in this area to increase, with reported earnings expected to rise to $0.83 per share, up from $0.66 per share a year ago. But the more useful figure is cash flow. eBay generated $584 million in free cash flow in Q3, and the company needs more success here to meet management's goals of investing in the business while paying down debt and paying out more cash to shareholders through dividends and share repurchases.
Iannone and her team will be looking at an unusually wide range of potential outcomes as they make their official guidance for 2021. Organic sales are likely to increase by at least 20 percent in 2020 from their original forecast, aiming for a break-even result. This growth sets a high bar for growth this year but also gives the market a giant boost in a fast-growing industry.
The good news is that eBay has already demonstrated some impressive competitive advantages at a time when sellers were looking for new platforms they could use to interact with their customers during last spring's tough lockdown.
The company's main goal for 2021 is to convince these smaller businesses to stay on their platform, mainly by making it more popular with customers and easier for sellers to use. These successes are key to eBay defending its positive momentum in what will likely be a competitive selling period in the future for the e-commerce industry.
While the price is above 53.75, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 56.50
- Take Profit 1: 59.80
- Take Profit 2: 62.00
Alternative scenario:
If the level 53.75 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 53.75
- Take Profit 1: 51.45
- Take Profit 2: 49.85