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What to watch for in eBay’s earnings

EBay will face analysts for the first time since PayPal spinoff

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EBay faces analysts for the first time since announcing the PayPal spinoff

EBay Inc. is set to report third-quarter earnings after the market close on Wednesday, just two weeks after breaking up with its payment processing arm, PayPal.

The San Jose-based company late last month said it would spin off its $7 billion mobile-payments processing division into an independent public company in 2015, increasing both companies’ agility amid rapidly intensifying competition in their respective marketplaces.

When eBay EBAY, +0.26% holds its first conference call since the announced split, analysts will be looking for hints as to how future eBay plans to operate -- from M&A and stock buyback strategies to longer-term financial outlooks.

However, its coming earnings report has been somewhat overshadowed by the broader PayPal-eBay split news, and some analysts say that may deter eBay from updating its full-year outlook.

Here’s what to expect:

Earnings: EBay reported adjusted earnings of $868 million, or 69 cents a share, last quarter, topping average analyst estimates in a FactSet poll by a penny. This quarter, analysts are expecting non-GAAP earnings per share to decline slightly to 67 cents, which is at the higher range of eBay’s own expectation between 65 cents and 67 cents a share.

“Given the recent change of heart on the spin-out, we may see that the September quarter is lackluster,” said BGC Partners analyst Colin Gillis in a recent note. “We do not expect the company to miss guidance, but we also do not expect upside results or an increase in the full year outlook.”

Revenue: In the second quarter, eBay reported a 14% increase in total revenue to $3.9 billion. Its legacy marketplace division grew 10% year-over-year to $2 billion and gained 3.5 million active users, however the core Marketplaces platform saw a slowdown on gross merchandise value.

The company in July lowered its sales estimates for the quarter ended Sept. 30, predicting a shortfall after it faced a massive cyber breach earlier in the year that affected some 145 million of its customers. It now predicts revenue in the range of $4.3 billion to $4.4 billion. Analysts on average are calling for third-quarter revenue of $4.37 billion.

Stock reaction: EBay’s shares have been on a roller-coaster ride in 2014, ranging from a closing high above $59 in March, to as low as $48.25 in June, after eBay admitted to the cyber breach. Its shares jumped 7.5% on Sept. 30, after announcing a split from PayPal.

Shares are down 7.8% in the year through Tuesday’s close, while the S&P 500 is up 1.6%.

What to watch for: Analysts are mostly bullish on eBay but foresee near-term challenges. In a poll of 42 analysts conducted by FactSet, eBay averaged a $60.81 price target. The analyst group averages an overweight rating on eBay, although a few issued downgrades following the PayPal news.

In a recent note to clients, Raymond James analyst Aaron Kessler, citing data from ChannelAdvisor, said eBay seems to be recovering from the data breach and disadvantages related to a change in the Google search algorithm. According to the data, eBay in September posted its first increase in year-over-year same-store sales since the June data breach.

However, eBay is facing increasing competition in the crowded e-commerce space. While analysts are calling for a long-term growth rate on eBay of 12.1%, they are forecasting a much more bullish growth rate of 42% on rival Amazon.com AMZN, +0.61% set to report earnings on Oct. 23.

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