EBay: Solid Investment, But Buy at the Right Time

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On Tuesday afternoon, the largest online auction marketplace servicer – eBay (NASDAQ:EBAY) — reported its first-quarter earnings figures. After rising during trading hours, the stock lost these gains and then some after reporting on weak forward guidance. The stock now trades at about $52.50 per share.

While the company reported a $2.3 billion loss due to a onetime tax loss, its numbers were generally quite strong.

EBay reported a 14 percent increase in revenues, which is impressive given this weak market environment. However, non-GAAP earnings only grew by 11 percent, which reflects the fact that the company’s fastest-growing business — PayPal — has lower operating margins than the rest of the company. From that standpoint, the margin contraction isn’t such a bad thing, and so long as PayPal continues to outpace the eBay marketplace, business margins should continue to contract.

But despite the fact that PayPal was the company’s fastest-growing business — 19 percent revenue growth year over year – the eBay marketplace business saw 10 percent revenue growth, which, again, is impressive considering the tepid retail landscape.

These figures are very encouraging. This is especially true considering eBay’s reasonable valuation. The stock trades at approximately 22 times trailing earnings. If the analyst estimates are correct, then the shares trade at 18 times 2014 earnings and just 16 times 2015 earnings.

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