Wal-Mart has 10,700 stores in 27 countries with earnings per share growing by 59% over the past five years and has successfully returned $60 billion in cash to shareholders as well. If Amazon.com, Inc. (NASDAQ:AMZN) is too risky, why not turn to Wal-Mart? After all, Wal-Mart’s business strategy is a proven success.
eBay Inc (NASDAQ:EBAY)’s earnings performance
Investors sold the stock after the company reported earnings that barely beat analyst estimates by a penny. eBay Inc (NASDAQ:EBAY) reported quarterly earnings of $0.63 per share, with analysts anticipating $0.62 per share. The slight beat on earnings sent some shivers down the spines of analysts as it alluded that eBay Inc (NASDAQ:EBAY)’s growth may be maturing and that the growth premium factored into the stock should be scaled down a little.
eBay’s guidance was the worrisome aspect of the earnings report. eBay expects revenue for the full-year to be $16 billion to $16.5 billion, with earnings expected to be $2.70 to $2.75 per share. Analysts were anticipating earnings of $2.74 per share. eBay’s performance is likely to be in the mid-range of its guidance forecast ($2.73), implying that eBay’s earnings will either miss expectations by a penny, or beat expectations by a penny. It honestly depends on how eBay recognized losses for the current fiscal year, and if growth deteriorates in foreign markets.
eBay generated 14% year-over-year revenue growth, and EPS grew 14%. eBay’s operating margin remained flat, which is why analysts were somewhat disappointed. eBay reported 14% growth in its eBay market place revenue; the GSI division was flat (eBay’s buy out of GSI commerce for $2.4 billion may have been a financial failure). eBay’s growth is primarily driven by its merchant services (PayPal), which generated 18% year-over-year revenue growth.
Conclusion
eBay’s recent earnings announcement fell short of its own guidance. This was driven by the flat performance from the GSI Commerce division of the company, along with the rallying dollar against a basket of currencies. eBay could have generated higher returns on invested capital by buying a sector ETF rather than acquiring this non-performing division. eBay’s core business portfolio (marketplace and merchant services) showed stable growth, with international markets being the primary growth catalyst.
eBay is still a growth stock, and I see no fundamental deterioration in the company’s performance. eBay will sustain its EPS growth with expansion into foreign markets and may generate even further improvement in profits due to cost-cutting. The company’s macroeconomic environment is improving. U.S. consumption is growing and consumer sentiment is recovering. This will lead to organic revenue growth in its marketplace and merchant services division.
The overall trend is up, and while analysts may be flustered, investors should stay the course.
The article This Company’s Long-Term Prospects Are Still Intact originally appeared on Fool.com and is written by Alexander Cho.
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