eBay Earnings Preview

eBay EBAY will report Q1 2013 earnings after the bell on April 17, with its conference call beginning at 5:00 pm EST. The early innings of earnings season in the technology space hasn’t impressed investors.

Yahoo YHOO reported on Tuesday that display advertising, its main revenue stream, was down 11 percent and Intel INTC said on its conference call that weakening PC sales are impacting operating margins.

Investors have especially high hopes for eBay. This stock is up about 56 percent over the past year on better than expected reports for the past eight quarters.

Expectations

Consensus estimates call for EPS of $0.62 per share—12 percent higher year over year. Revenue is expected to come in at $3.76 billion—a 13 percent increase year over year. Second quarter guidance calls for EPS of $0.66 on revenues of $3.82 billion.

Analysts

On Monday, Bank of America analyst Justin Post reiterated a Buy rating on eBay and raised the price target from $60.00 to $62.00, according to as reported by Benzinga.

In the note, Post said what many analysts have said recently—positive earnings are already priced in. “While we don't see a lot of estimate or stock upside on results given the strong sentiment and post-Analyst Day move, we like eBay's market position and strategy and maintain our Buy rating.”

On April 2, Topeka Capital upgraded the stock from Hold to Buy and raised its price target from $54.00 to $65.00. It said in the note, "We believe that the core e-commerce transaction business can continue to benefit from a rising tide of commerce moving to the Internet/mobile and that PayPal can drive 20%+ annual top-line growth for the foreseeable future."

The Bull Case

eBay has an aggressive three year growth plan that includes more reliance on mobile technology and further expansion of PayPal which now accounts for 40 percent of the company’s revenue. It plans to expand PayPal into an application that brings digital wallet technology to the mainstream.

This is a tall order but as mobile technology continually evolves, along with impressive growth and reliance on PayPal, this is a plan that has the potential to place significant pressure on other payment processors.

The Bear Case

Short interest in eBay increased 25 percent in March although it still only represents one percent of the float. This is another sign that the stock is getting ahead of itself. With the stock already pricing in an earnings beat, traders are worried that short of a blowout quarter, there’s nowhere to go but down.

Technical Analysis

Volatility in the stock has slowly increased since July but even through some large selloffs, the stock continues to make higher highs. It’s currently above its 20, 50, and 200 DMAs but volume has dried up indicating the recent leg up may be tired. The risk/reward for an earnings trade doesn’t appear attractive but after beating revenues for the past eight quarters, it’s difficult to justify a thesis of disappointment.