EBAY Stock Earnings Preview
eBay Inc (NASDAQ:EBAY) stock is expected to report its first-quarter earnings on July 20, 2016 after market close.
Once a quarter, management reports earnings. On a scheduled conference call, EBAY stock management outlines the company’s current state of affairs and provides guidance regarding its future business prospects. The conference call also presents an opportunity for analysts to discuss the current results in an open forum. This event has had a history of causing significant volatility in EBAY stock.
Swings post-earnings are significant and can cause angst for investors. If investors seek the proper answers, they can be better prepared for the volatility ahead.
What to Expect When eBay Reports
Examining eBay’s track record of earnings can give insight into the ability of the company’s management to perform. eBay has a history of surprising to the upside and beating reported earnings. Over the last 23 quarters, eBay has beaten earnings estimates 20 times, missed estimates only once, and matched earnings estimates twice. The company boasts an impressive track record of beating earnings estimates 87% of the time, with an average beat of 4.4%. (Source: “eBay Earnings,” Street Insider, last accessed July 18, 2016.)
According to Zachs Investment Research, based on 27 analysts’ forecasts, the current consensus earnings-per-share (EPS) forecast is $0.36. Given management’s history of beating on the bottom line, I expect EBAY stock to beat consensus earnings estimates for the first quarter.
EBAY stock has had a history of significant volatility post-earnings. The three boxes highlighted below illustrate the level of volatility EBAY stock experiences.
Chart courtesy of www.StockCharts.com
- October 21, 2015: eBay reported EPS of $0.43, beating consensus estimates by $0.03. Post-earnings, EBAY stock gapped up and closed the day up 13.9%.
- January 27, 2015: eBay reported EPS of $0.50, matching consensus estimates. Post-earnings, EBAY stock gapped down and closed the day down 12.5%.
- April 26, 2016: eBay reported EPS of $0.47, beating consensus estimates by $0.02. Post-earnings, EBAY stock gapped up and closed the day up 3.2%.
Investors can use options to help quantify the level of volatility following earnings. Options prices have implied volatility embedded in them. Implied volatility expresses the expectations of future volatility and is reported on an annualized basis.
Using the above formula, the July 22, 2016 EBAY stock options are pricing in a 9.4% move in EBAY stock. This translates into an above-average probability that EBAY stock will trade up or down $2.50 post-earnings from their current levels.
The volatility implied by the options price is roughly inline with previous earnings announcements. It is safe to assume that EBAY stock will see similar significant volatility similar to what has followed previous earnings results.
The long-term price trend of an investment can give insight into expectations.
Chart courtesy of www.StockCharts.com
EBAY stock has been trading in an uptrend since its lows in 2009. This uptrend is defined by higher highs and higher lows.
From 2013 onward, EBAY stock has been confined to range trading on either side of $24.00. This range has caused the trend to slow though it remains positive.
The long-term trend serves as a positive bias as to the possible reaction and future direction of eBay’s stock price.
The Bottom Line on eBay Stock
With a long history of beating earnings estimates, I expect eBay to beat the current consensus estimate. Implied volatility is roughly inline with previous quarters, so EBAY stock will likely trade up or down $2.50 from its current levels. The long-term trend is up and serves as a positive bias towards the earnings reaction and the abovementioned factors point to a likely bullish outcome.