If you shorted eBay Inc. (NASDAQ:EBAY) stock going into its third-quarter earnings, you are likely regretting that decision now. Since the release of its third-quarter earnings report on October 21, eBay’s stock price has surged an impressive 21.1%.
Many investors weren’t so optimistic about the company prior to its 3Q earnings report, as this was the first quarterly report released since eBay spun off its fast-growing business PayPal Holdings, Inc. (NASDAQ: PYPL) as a separate entity. From September 30 to October 15, short interest for eBay shares increased by 9.3% from 22.34 million shares to 24.41 million shares. (Source: “eBay Inc. Short Interest,” NASDAQ web site, last accessed December 1, 2015.)
However, as it turned out, eBay was doing just fine. Revenue in the third quarter came in at $2.1 billion, slightly higher compared to analysts’ expectations of $2.09 billion. Earnings per share (EPS) came in at $0.43, beating analysts’ expectations of $0.40 per share.
Devin Wenig, eBay’s president and CEO, remarked, “We drove solid results in the quarter in which we completed a complex separation.” As a result, eBay shares jumped nine percent in after-hours trading on its earnings day. (Source: “eBay Inc. Reports Third Quarter 2015 Results,” eBay Inc., last accessed December 1, 2015.)
eBay’s Ongoing Improvements
Sure, eBay is still recovering from last year’s password security breach and the changes in Google’s search algorithm, but the company has taken solid steps to improve search engine optimization (SEO). In this year’s seller update, eBay made several changes to its listing requirements. Sellers are now required to include product identifiers for listings in certain categories. These changes would help customers find products more easily and increase product exposure in Google’s search results.
For customers shopping online, it is important to get the products in a timely fashion. For eBay, fast shipping has always been a challenge, because it does not keep goods in a warehouse, but instead relies on millions of merchants. Recently, however, eBay has realized the importance of delivery time and introduced a speedy shipping membership in Germany called “eBay Plus.” The membership costs €19.90, with members getting free delivery within two days on many items and free returns within 30 days of a purchase.
According to eBay’s vice president of shipping, Carl Gish, eBay has been testing the program since May and already has thousands of sellers signing up. The new program requires sellers to ship goods on the same day if the order is placed before 2:00 p.m. By joining the program, sellers can get a reduction on their listing fees and improved listing placement of their products. (Source: “eBay Preps Amazon Prime Competitor,” The Wall Street Journal, May 20, 2015.)
eBay’s ongoing capital return program should also be able to whet investors’ appetites. In the third quarter of 2015, the company repurchased approximately $599 million of its common stock. The remainder of eBay’s total repurchase authorization came in at $2.4 billion by end of the quarter.
The company has also become more bullish about its full-year results. Previously, eBay was expecting full-year EPS to be in the range of $1.72 to $1.77. This time, the company boosted the outlook for its full-year EPS to a range of $1.80 to $1.82.
The Bottom Line on EBAY Stock
Trading at $29.32 a share, eBay has a price-to-earnings (PE) multiple of 15.85, which is quite a low number in the e-commerce business. Combining its solid performance, a low PE multiple, and the steps it’s currently taking to improve its platform, eBay is certainly a stock worth looking at for value investors.