eBay Falls After Weak Guidance Saps Investor Sentiment

Move To The Sidelines When It Comes To eBay

eBay NASDAQ: EBAY reported a decent second quarter but shares fell anyway. Shares of eBay fell because the company missed its consensus estimates and confirmed one of the market's growing fears. eBay not only missed its consensus target but it also guided the third quarter and the second half of the year lower. With so much of the 2021 growth outlook pinned to the second half, the Delta variant spreading rapidly around the country, and companies like eBay guiding the market lower we might soon see the entire S&P 500 begin to correct and not just shares of eBay. Longer-term, the eBay story is still intact but, for now, it's time to sit on the sidelines and wait for a better time to own the stock.

eBay Misses The Mark For The Second Quarter

eBay had a good second quarter but one that missed the consensus estimates by a wide margin. The company reports $2.67 billion in net consolidated revenue for a gain of 14.1% over last year. The problem is that analysts had been expecting another 600 basis points of revenue growth. The growth was driven by a variety of factors including eBay's payment migration and advances in advertising revenue and should continue if at a lesser pace than previously expected.

Moving down the report, the company reported a decline in margins on both the adjusted and GAAP basis. The adjusted operating margin came in at 32.8% compared to 39% last year and cut deeply into the bottom line. On an adjusted basis, eBay earned $0.99 or $0.04 better than expected but still down from the calendar year 2020. On a GAAP basis, the earnings of $0.43 are less than 1/2 what eBay posted in the previous year and missed the consensus by $0.30.

Turning to the guidance, eBay is guiding third-quarter revenue in a range of $2.42 to $2.47 versus the $2.72 predicted by the analysts. The one mitigating factor is that the company is divesting itself of partial stakes in several business investments which is increasing cash reserves but also cutting into earning potential. As for earnings, the company is expecting $0.86 to $0.90 in adjusted EPS vs the $0.89 expected by the analyst.

The Analysts Are Iffy On eBay

The analyst consensus on eBay is neutral with a slightly bullish bias and that hasn't changed in the wake of the  Q2 report. Five analysts have come out with rating changes or price target changes in the wake of the report and only one has upgraded the stock, that from neutral to buy. The remaining four maintained neutral ratings but did increase their price targets. The consensus of these most recent 5 analysts is in the range of $70 to $75 or about 3% to 7% upside from current price action. This is consistent with the broad consensus but the new high is $85 set by Benchmark soon after the release.

The Technical Outlook: eBay Looks Range-Bound

Shares of eBay appear to be finding support in early action and have regained most if not all of the early losses. The caveat is that resistance appears to be present at the short-term moving average and that may cap gains in the near term.  Even if shares of eBay are able to get above the moving average and claw their way higher we see strong resistance near the $73level. Regardless, it is our opinion that eBay will be range-bound over the next few weeks or months and needs to regain market confidence before a rally can resume.