Earnings: What Might Be Expected From eBay And AT&T?

As the earnings parade continues, two firms keeping a close eye on their user bases—telecommunications and media giant AT&T Inc. T and online marketplace eBay Inc EBAY—prepare to open their books after the market closes Wednesday.

EBAY’s Not Your Father’s Online Marketplace

The online selling site, which burst onto the scene in the early days of the Internet, may now be seen as the “elder statesman” of online auctions. The site matches sellers to buyers through three units—Marketplace, StubHub and Classifieds. Some analysts are forecasting that each of the three could post better year-over-year revenue and earnings in Q4, despite EBAY’s having tempered its outlook in Q3.

EBAY is in the midst of a refreshening aimed at glamming up its "old school" image to attract younger sellers and buyers. Part of that includes structured data and other technology initiatives to help make the site more easily searchable. However, some analysts say that those initiatives are still too new to have a meaningful effect on Q4 results.  

A year ago, Marketplace posted transaction revenue of $1.58 billion. StubHub’s transaction revenue was $232 million while Classifieds was $183 million, according to the company.

How might EBAY ramp up revenue and earnings in Q4? StubHub, some analysts note, isn’t the growth engine that PayPal was. (PayPal, a big revenue generator for EBAY, was spun off in 2015.) But StubHub, which touts its ability to “connect people to inspiring event experiences,” appears to be benefiting from the shift in consumer spending to “experiences” from “things.”

In its Year in Live Events report, released in December, StubHub said that, on a global basis, consumers spent 8% more in 2016. That was partially attributed to a handful of “once-in-a-lifetime events” in live sports, concert and performing-arts events. For example, all of StubHub’s top 10 sales events were sports events. The Super Bowl was No. 1, and the next five were the games of the World Series.

And on a sequential quarterly basis, StubHub’s revenues grew at a 27% clip from Q1 to Q2, and 16% from Q2 to Q3. Some analysts have compared that with Marketplace’s flat revenues in the first three quarters of 2016.

On Marketplace, EBAY has been upping its boutique cache by rolling out more sophisticated shopping portals like ‘eBay Collective” and “eBay Wine,” that curate higher-end, and, yes, higher-margin products, separate from the core marketplace. Some analysts say they hope to hear more about that type of segmentation.

In Q3, EBAY saw 1 million more active users, which boosted its total to 165 million, the company said.

Analysts reporting to FactSet are forecasting that EBAY will earn $0.53 share, a 6% increase over the year-ago earnings. Revenue is expected to grow to $2.4 billion, up about 3.5% from $2.32 billion a year ago.

The options market has priced in an expected share price move of 6.5% in either direction around the earnings release, according to the Market Maker Move™ indicator on the thinkorswim® platform from TD Ameritrade.

Call buyers are at the weekly 31.5 and 32 strikes, while puts are active at the 29.5 strike. The implied volatility sits at the unusually high 63^rd percentile. (Please remember past performance is no guarantee of future results.)

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation, to sell the underlying security at a predetermined price over a set period of time.

AT&T Deal in the Crosshairs?

T has plenty on its plate to juggle as it releases Q4 results. Its $85.4 billion deal to add Time Warner Inc TWX to its stable is still pending as the company attempts to diversify into traditional and not-so-traditional TV and studio markets. In 2015, it bought DirecTV for nearly $50 billion and has since become the biggest pay-TV provider in the U.S.

Whether the deal goes through may well end up to be dependent on how the new administration views such mega-mergers. While on the campaign trail, Donald Trump was a vocal opponent of the deal, which he said was too big, and would “put too much power in the hands of too few.” Since then, President Trump has met with T’s Chief Executive Randall Stephenson, though published reports said they didn’t talk about the merger. Trump has told other media outlets that he hasn’t seen the details of the deal yet. Meanwhile, T has ramped up its lobbying efforts, according to published reports.

No surprises here—some analysts say they’re hoping Stephenson and his crew will shed some light on what they expect from the new president and his administration.

T’s move toward TV to focus on more high-value customers who bundle cable, TV and wireless services comes at a time when T’s wireless phone business has been losing subscribers. In Q3, it reported that it had lost 268,000 postpaid phone subscribers, following Q2’s loss of 180,000.  However, last week, T said that DirecTV Now, its new streaming-video service, tacked on at least 200,000 paying subscribers in December, its first month of operation.

It’s unclear if the new DirecTV Now customers helped offset the losses enough to meet T’s goal for net video additions, according to some analysts.

Other analysts say they are looking for more insight into how the DirecTV Now sales are holding up since ending the promotional pricing and incentives, which included a bundle with more than 100 channels for just $35 a month. That same package now rings up at $60 a month.

For the quarter, analysts reporting to FactSet expect per-share earnings of $0.66, slightly higher than the $0.63 a share in the year-ago period. Revenue is expected to hit $42.11 billion, about the same as last year.

The options market has priced in an expected share price move of 1.9% in either direction around the earnings release, according to the Market Maker Move™ indicator on the thinkorswim® platform.

Call activity has been seen at the weekly 43 strike while put buyers have been active at the 41 strike. The implied volatility sits at the 35^th percentile. (Please remember past performance is no guarantee of future results.)