Buy PayPal, Sell eBay? Investors Give Credence To Spinoff Theory After Earnings
Results out of eBay Inc (NASDAQ: EBAY) and PayPal Holdings Inc (NASDAQ: PYPL) Wednesday afternoon gave more credence to the school of thought suggesting recently spun-off segments often outperform the market.
PayPal Results Looked Solid
PayPal posted fourth-quarter adjusted earnings of $0.36 per share on sales of $2.6 billion. Analysts had been expecting $0.35 in EPS on sales of $2.51 billion. Earnings were up about 27 percent on a year-over-year basis.
The company said it is expecting first-quarter earnings in the range of $0.34-$0.36 per share compared to the analyst consensus estimate of $0.35.
Fiscal year EPS are anticipated to be in the range of $1.45-$1.50, towards the light end of the $1.49 sell-side estimate.
To boot, PayPal announced a new $2 billion buyback plan.
eBay Quarterly Sales And Outlook: Below Estimates
eBay showed a 10 percent decline in quarterly earnings, from $0.55 in the same quarter last year to $0.50 per share. The Street had expected eBay to report earnings of $0.50.
Sales at eBay totaled $2.322 billion, down about 1 percent year-over-year and versus the consensus estimate of $2.32 billion.
The company is looking for first-quarter EPS of $0.43-$0.45 on sales of $2.05 billion to $2.1 billion. Analysts are expecting EPS of $0.48 on sales of $2.16 billion.
For the full year 2016, eBay sees EPS of $1.82-$1.87, well below the current Street estimate of $1.98. Sales are expected between $8.5 billion and $8.8 billion, compared to the consensus estimate of $8.99 billion.
Opposite Price Action; Spinoff Theory?
Shares of PayPal were trading up about 5 percent in Wednesday's after-hours session following better-than-expected fourth-quarter results; eBay shares, meanwhile, were trading down nearly 12 percent on the heels of disappointing quarterly sales.
A past study from Purdue faculty McConnell and Ovtchinnikov shows that over 45 years of data, new spinoffs beat the market by nearly 20 percent in their first 12 months of trading.
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