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Take Advantage of eBay's Earnings Dip

Despite eBay's (NASDAQ: EBAY  ) earnings results leaving investors wanting more in the form of guidance, the long-term story remains intact. As a result, this temporary setback has created a buying opportunity for those who are committed to long-term growth investing.

Breaking it down
For the second quarter, the e-commerce giant reported revenues of $3.9 billion, a 14% year-over-year increase, which translated to non-GAAP net income growth of 13%, to $822 million. Combined, the company enabled over $51 billion of commerce, representing an increase of 21% year over year. During the quarter, eBay's mobile engagement enjoyed 90% year-over-year growth by attracting 3 million new customers across its platforms, reinforcing the belief that the company is well positioned for the age of mobile computing and multiple screens.

During the quarter, eBay's core marketplaces business remained strong. It experienced revenue growth of 10% year over year, 3.5 million new accounts, and a gross merchandise volume increase of 13%, to $18 billion. PayPal was also no slouch, with its 20% year-over-year revenue growth, and 4.7 million new accounts added during the quarter, bringing the grand total to 132 million active PayPal accounts.

Where eBay went wrong was with its guidance. The Street was expecting eBay to earn $0.65 a share on revenue of $3.97 billion in the third quarter, slightly above eBay's forecast of earning $0.61 to $0.63 a share with sales of $3.85 billion to $3.95 billion. Because it's totally unacceptable for a company to miss on guidance, shares pulled back over 6% on the news.

Two 800-pound gorillas
Currently, there are about 2 billion Internet users in the world, a number that's expected to double in the next three to five years. With the majority of these users expected to experience the Internet for the first time on a mobile device, eBay has placed an emphasis on developing localized mobile e-commerce solutions as a way to reduce cultural friction. But what really sets eBay apart from the competition in mobile is the fact that its revenue is exactly the same regardless of medium. As a comparison, companies like Google and Facebook have faced revenue headwinds as they try to capitalize on mobile.

Now, just because eBay is a leader in facilitating worldwide online commerce doesn't mean that the company wouldn't mind becoming a powerful force in the offline world. To that end, the company has partnered with Discover Financial, allowing PayPal to be accepted at over 2 million U.S. brick-and-mortar locations by the year's end. The great part about this opportunity is that PayPal only needs to capture 1% of the offline point-of-sale market for PayPal's entire business to double. Granted, this may sound relatively easy to accomplish, but the competition is fierce, and the threat of Apple entering the mobile payments space may disrupt PayPal's plan. 

Don't miss out!
Long-term investors love short-term setbacks because it allows them to invest in an excellent business for an even better price. In the case of eBay, investors were hoping its short-term earnings guidance was more in-line with their seemingly lofty expectations, which has little to do with the long-term growth story. With the buying opportunity presenting itself, and the evidence backing the idea that eBay's core businesses remain strong, what else are you waiting for?

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  • Report this Comment On July 20, 2013, at 3:23 PM, smac1161 wrote:

    I couldn't agree more. Just bought more shares on the dip yesterday.

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9/28/2016 2:44 PM
EBAY $31.84 Down -0.10 -0.31%
eBay CAPS Rating: ****