eBay beats estimates: Buy or Sell?

Filed under: Earnings reports, Google (GOOG), Yahoo! (YHOO), eBay (EBAY), Amazon.com (AMZN), Stocks to Sell

eBay (NASDAQ: EBAY), an online site for auctions and sellers whose colleagues include Amazon (NASDAQ: AMZN), Google (NASDAQ: GOOG), and Yahoo! (NASDAQ: YHOO), reported Q4 and full-year earnings on Wednesday after the bell. Net sales decreased 7% to $2 billion for the quarter, and adjusted income dropped 9% to $0.41 per diluted share. The bottom line actually beat estimates by two pennies according to Trey Thoelcke's Before the Call piece. The top line was below estimates, unfortunately. For the year, net sales increased 11% (as can be expected, the stronger dollar caused this divergence in terms of the revenue picture) to $8.5 billion, and adjusted earnings per diluted share increased 12% to $1.71 per share. Sales essentially met expectations, while earnings beat by a penny. Nice.

But was it nice enough? In the after-hours session, eBay shares shed 6% of their value. Quite honestly, I can see why that happened. During the regular session, shares were bid higher by an almost equal amount. A bit of selling on the news seemed warranted. I do have to say, though, that eBay delivered a good amount of free cash flow, well over $2 billion, in fact, for the year. While that's cool, if you take a look at the cash-flow statement for the quarter, you'll see that cash from operations decreased. Going forward, eBay's stock will most likely have a tough time appreciating in value. Sure, this earnings report wasn't a disaster or anything close, but I just don't see the numbers convincing the institutions on Wall Street to step up and buy (as a matter of fact, this article talks about how the guidance was disappointing to investors). And if they're not going to, why should you or I? This is a weak stock, there is no dividend yield associated with it, and it is probably better left to value players with a high quantity of resilient patience.

So, for me, I'd say eBay is a sell. I can't see it helping a portfolio, and I believe there are better investment alternatives out there that would interest me. As Brian White wrote a while back, eBay's business model is evolving over time. While its brand equity still centers on auctions, the site doesn't necessarily focus on that process anymore. It'll take time for the company to find its second wind. Until then, I'll stay away.

Disclosure: I don't own any company mentioned; positions can change without notice.

eBay beats estimates: Buy or Sell? originally appeared on BloggingStocks on Thu, 22 Jan 2009 08:29:00 EST. Please see our terms for use of feeds.

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