EBay Inc. is one of the largest ecommerce companies in the world. Operating as a technology company, eBay enables global consumers, retailers, merchants and brands of various sizes, to easily gain access to online sales services. This online marketplace giant operates in three core segments which include; marketplaces, payments and enterprise.
The Marketplaces segment is responsible for operating the ecommerce platform, or eBay.com, as well as localized sites, vertical shopping and classifieds websites. The Payments segment of eBay is responsible for operating PayPal, which is largest online payments system in the world.
Finally, the Enterprise segment serves individuals and brands operating in the general merchandise category by providing them with various commerce technologies to enhance their online business. With an understanding of eBay and its operations, you might be wondering if you should be trading in eBay stock. Let’s explore this further.
eBay Stock – A Trading Opportunity?
eBay’s stock price has been trending sideways for the past couple of weeks and investors have found limited trading opportunities on the stock. The stock has been ‘trapped’ between $28 and $30 for about 6 weeks now and traders who employ range trading strategies, would have found this stock very attractive.
The major factor that led to low volatility on this stock was the quarterly financial report that was released in October. The report showed mixed performance on various metrics and did not spark a directional move on the company’s stock. The major strengths the report showed compared to last year, however, was in its stock performance and strong return on equity.
Compared to the previous year, eBay’s price closed 49.56% higher in the third quarter of 2015. This represented one of the best performances of a stock within that time period. The report also showed that the company achieved a return on equity (ROE) of 46.08% in the third quarter of 2015 compared to -0.26% ROE in Q3 of 2014.
This ROE was way above the industry average of 12.77% as well as the S&P 500 index (SPX) average of 12.91%. This showed that eBay remains a strong leader among its peers.
Nevertheless, the latest earnings report also had a couple of bad news items that cast a negative outlook on the company’s future performance. Since the same quarter a year ago, eBay’s revenues decreased by 51.79%, which was way below the average industry growth of 10.2%. This decline in revenue resulted in a $0.45 earnings per share (EPS) compared to $0.82 EPS recorded in the same period last year.
Compared to the same quarter last year, the net income also decreased 19.92% to $539 million. Net operating cash flow also suffered a significant tumble of 49.85% to $686 million compared to the same quarter the previous year.
eBay Fundamental Outlook
eBay operates in the internet services and software industry, where it is one of the major players alongside brands such as Google and Yahoo. This industry is highly dynamic and competitive, but eBay has managed to grow its unique business model. Around the world, customers are now becoming more and more comfortable making online purchases and this bodes well for eBay, which is one of the largest online marketplaces controlling PayPal, the biggest online payment solution.
Other major fundamental factors that will like boost the performance of eBay include the declining cost of computers and internet tariffs as well as the increasing online availability of most businesses’ goods and services.
In October this year, eBay, which is a US company based in San Jose, California, gained significant political capital when President Obama, in an open letter, reiterated his commitment to push for the enactment of the Trans-Pacific Partnership.
This is a trade agreement that seeks to regulate and streamline trade between the US and 11 other Asia-Pacific countries. If passed, eBay will have its cash flows and revenues greatly boosted as more transactions will be able to be completed by its customers.
Despite the mute stock performance, eBay enjoys solid fundamentals that will likely support its next phase of bullish growth.
eBay Technical Analysis
The current price of eBay is $28.53 a share. Ever since the stock went on a mini rally in mid-October that saw it break above the $28 level, there has been a sideways price movement that has seen the pair contained between the $28 and $30 price levels. This price range has been so dominant that on many binary options platforms, traders have applied the No Touch boundary option contracts on this stock.
After breaching the previous resistance of $28, the stock has been consolidating with an upward bias because the stock price has only retreated to this level once during the 6-week period. Investors firmly expect an upward break out of the current range with $35 likely to be the medium term price target.
The current sideways price movement of eBay offers traders the chance to position themselves for the return of liquidity to the stock. Given eBay’s promising fundamentals, its stock looks under-priced and offers traders a lucrative trading opportunity going into the month of December.