“Armchair Trader Series” Recommendations
- Week Beginning -
Monday, April 29, 2019

by Ian Harvey

IMPORTANT NOTE: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

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Option Trade – eBay Inc. (NASDAQ:EBAY) Calls

Wednesday, May 01, 2019

** OPTION TRADE: Buy the EBAY JUL 19 2019 39.000 CALL at approximately $1.50. Place a pre-determined sell at $3.00.

Also include a protective stop loss of $0.60.

E-commerce company eBay Inc. (NASDAQ:EBAY) recently announced surprisingly strong sales growth that convinced management to boost their outlook for the full 2019 year. eBay's matchmaking operating approach delivers high profits, with operating margin of around 30% of sales.

eBay's profitability is rising, too, as the company cuts costs and steadily increases the transaction fees that it charges its sellers. Those fees can only expand as eBay improves the seller experience.

eBay has begun a new market cycle, and it looks as if has plenty more room to run.

The projection is for EBAY to hit $46 in the next couple of months.

About eBay……

eBay Inc operates commerce platforms that connect various buyers and sellers worldwide. Its platforms enable sellers to organize and offer their inventory for sale; and buyers to find and purchase it virtually. The company's Marketplace platforms include its online marketplace at ebay.com and the eBay mobile apps; and StubHub platforms comprise its online ticket platform at stubhub.com, and the StubHub mobile apps and online ticket platform that connect fans with their favorite sporting events, shows, and artists, as well as enable them to buy and sell tickets.

History of ebay…..

It has been nothing short of a roller coaster ride for shares of eBay over the past several years, with each new year bringing about a different narrative.

  • In 2017, eBay was an outdated ecommerce marketplace updating itself and staging a huge turnaround. The numbers were accelerating higher, bulls were in control, and EBAY stock consequently soared.
  • Then, in 2018, the narrative reversed course as growth rates started to slow. The turnaround was broadly declared as over, bears took control, and EBAY plummeted.
  • Now, in 2019, bulls have taken control again. The numbers have stabilized in 2019, implying that the worst of the operational slowdown was left in 2018. Meanwhile, margins are tracking higher, the economy is broadly improving, and online retail remains red hot. As such, bulls have recaptured control of the stock, and shares are up 35% year-to-date.

The Report…..

The company reported earnings per share of $0.67 and total revenue of $2.64 billion, compared to analyst estimates of $0.63 and $2.58 billion. For the coming quarter, eBay management expects earnings to be between $0.61-0.63 compared to estimates of $0.60. 

CEO Devin Wenig explained that, “Our initiatives to create a next generation payment and advertising experience are on track, we saw healthy buyer growth and disciplined cost control, and we continue to simplify the buying process while remaining focused on seller’s success.”

In reviewing the market cycles for EBAY, the stock has now begun the rising phase of its current cycle. In fact, this is a perfect picture of cycle analysis, as the bottom came right on time, as have all previous cycle bottoms.

Future Outlook…..

Growth rates are stabilizing, and project to improve through the balance of the year. Meanwhile, margins are moving significantly higher and likewise project to continue to rise. Meanwhile, the financial market and economic backdrop continues to improve, and lends itself to improving growth trends for the rest of 2019.

As such, the growth outlook for eBay for the rest of the year is one defined by improving revenue growth metrics and expanding margins. Ultimately, that combination should keep the still fairly cheap EBAY stock on an upward trajectory.

For the second quarter, eBay is forecasting revenue in a range of $2.64 billion to $2.69 billion, which would represent growth of 3% at the midpoint of its guidance -- excluding the effects of exchange rates. The company is expecting adjusted EPS of between $0.61 and $0.63.

eBay also raised its full-year guidance, guiding for revenue in a range of $10.83 billion to $10.93 billion, up from its previous estimates of $10.7 billion to $10.9 billion. Its EPS forecast also edged higher, to a range of $2.64 to $2.70, up from its initial estimates of $2.62 to $2.68.

Positive Factors…..

GMV and revenue growth should re-accelerate higher this year as the company reaps the rewards of big 2018 platform and tech investments and benefits from an improving economic and consumer backdrop.

It also helps that organic revenue growth for the first quarter of 2019 came in a multi-quarter low of 3%. Thus, by the end of the year, it's fairly likely that organic revenue growth accelerates towards 5%. If so, history says that this acceleration should provide a lift to EBAY.

eBay projects as a stable company in the secular growth ecommerce market, and those stable growth fundamentals imply healthy long term upside in EBAY stock from current levels.

By now, it is abundantly clear that there will always be a place for eBay in the online retail world.

eBay's sales growth landed at 4% to comfortably exceed the 0% to 2% range executives issued back in late January.

eBay is aiming to lean on two new business lines, payments processing and advertising, to take up the slack from slower growth in the core marketplace segment. There was plenty of good news for investors on this score. eBay revealed that the payments business grew 61% to pass $220 million. The plans for quickly scaling the service are moving along, with Germany now set to be its second large market.

The advertising unit is also off to a good start, with 800,000 active sellers powering a doubling of revenue to $65 million.

eBay's biggest wins in the quarter arguably came from its discipline around expense management. Spending fell as a percentage of sales in each of its biggest operating categories to push non-GAAP operating expenses down to 48% of sales from 51% a year ago. As a result, operating margin improved to 30% of sales compared to 28%.

Analysts…..

eBay had its target price upped by UBS Group from $40.00 to $42.00 in a report published on Wednesday morning. They currently have a buy rating on the e-commerce company’s stock.

Several other equities analysts have recently commented on the company…..

  • DA Davidson boosted their target price on eBay to $44.00 and gave the company a “buy” rating in a research note on Monday, March 4th.
  • TheStreet upgraded eBay from a “c+” rating to a “b-” rating in a research note on Wednesday, January 30th.
  • Benchmark reaffirmed a buy rating and set a $42.00 price objective (up from $41.00) on shares of eBay in a report on Wednesday, January 30th.
  • Finally, Aegis restated a “buy” rating and issued a $40.00 target price (down from $44.00) on shares of eBay in a research note on Wednesday, January 2nd.

One equities research analyst has rated the stock with a sell rating, sixteen have assigned a hold rating and fourteen have issued a buy rating to the company. The stock currently has an average rating of “Hold” and a consensus price target of $42.12.

Finally…..

eBay has a market cap of $33.43 billion, a P/E ratio of 16.70, a price-to-earnings-growth ratio of 1.88 and a beta of 1.35. eBay has a 12 month low of $26.01 and a 12 month high of $40.86. The company has a debt-to-equity ratio of 1.48, a quick ratio of 1.60 and a current ratio of 1.48.






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