Wednesday's post-trading release of 2023 eBay's (EBAY) fourth quarter earnings looked fine at first glance, fine but not great.
The world's greatest online flea market, which is a member of my 2023 Tax Loss Selling Recovery Portfolio, reported earnings per share of $1.07, a penny ahead of consensus estimates, with the top-line ($2.5 billion) $45 million above consensus.
However, on Thursday, EBAY was greeted by some fairly rough treatment which sent shares down 5%, and there was clearly something the market did not like.
Now, I've had tons of discussions with newer investors about the folly of quarterly earnings releases. It takes a while to understand that it really does not matter to the markets how a company performs relative to the same period last year. Its expectations that matter. Revenue and earnings can double versus the same period last year, but if those results are below expectations, watch out.
Admittedly, even that explanation, while not incorrect is still an oversimplification. A company can hit or exceed estimates, and still get shellacked, as we saw with EBAY. Earnings release dates start the clock ticking for the next quarter or year, and companies often reveal potentially good or bad news about future expectations that are interpreted by analysts and investors.
In EBAY's case, the company's drubbing was likely due to concerns about the potential eroding of its e-commerce market share. Analysts at Morgan Stanley and Truist raised misgivings about the company in the wake of the earnings release. In fact, Morgan Stanley reiterated its sell rating in the stock, and placed a $32 price target on the stock. Interestingly, Truist raised its price target from $48 to $50. You've got to love this stuff, it's still just a crapshoot.
EBAY ended the quarter with $4.8 billion in cash and short-term investments, and another $1.2 billion in long-term investments (primarily corporate and government debt), and about $9 billion in debt.
During the year, the company bought back another 65 million shares, and issued 10 million for a net decrease of 55 million. That's an 8% reduction in one year. In fact, EBAY has reduced shares outstanding by half over the past five years.
For what its worth, shares trade at 11x and 10x 2023 and 2024 consensus estimates, respectively. EBAY is a value stock, and its not the first time.
