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Why eBay Stock Is Tumbling This Week

By James Brumley – Oct 29, 2021 at 2:37PM

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The online-auction company's stock partly recovered from the setback, but shares are still set to end the five-day stretch in the red following disappointing earnings guidance.

What happened

Shares of eBay (EBAY 1.82%) are bouncing back from what was at one point a 10.6% loss for the week, according to data from S&P Global Market Intelligence. Still, even with Friday's 5% rally, the stock is set to close nearly 6% below last week's closing price. An otherwise healthy third-quarter report was tainted by lackluster earnings guidance for the quarter now underway.

So what

With the stock already in retreat from the all-time peak reached late in the previous week, Wednesday's post-close release of eBay's third-quarter earnings knocked another 6.7% off the stock's value during Thursday's trading. Last quarter's revenue of $2.5 billion was an 11% improvement on the year-ago comparison, and topped analyst estimates. Operating income of $0.90 per share also exceeded analysts' forecasts of $0.89, up from the year ago figure of $0.85.

Revenue guidance for between $2.57 billion and $2.62 billion for the fourth quarter of this year, however, doesn't compare favorably to the consensus estimate of $2.61 billion (and some are calling for even more). Those same analysts are also modeling a fourth-quarter profit of $0.99 per share versus the company's modest guidance of between $0.97 and $1.01 per share. While hardly problematic, investors were hoping for an outlook that was more compelling.

An investor watching a falling chart on a computer screen.

Image source: Getty Images.

Part of Thursday's knee-jerk loss was offset today, after investors had a chance to consider the company's bigger-picture prospects. But Friday's bounce still leaves the stock well short of last week's record highs.

Now what

While the recent volatility is alarming, investors who keep close tabs on eBay also know that such swings are nothing new. The stock has been taking one step back and then two steps forward since the latter part of last year, pushing its way higher on quarterly results and guidance that weren't too terribly different from those disclosed Wednesday afternoon. It's also worth noting that eBay has exceeded earnings estimates for five consecutive quarters now. It's plausible its fourth-quarter guidance will also be topped.

Whatever is in the cards, nothing has actually changed about this company's growth prospects, and the stock's corresponding potential. The recent price swing is just more of the same volatility shareholders have grown accustomed to of late.

James Brumley has no position in any of the stocks mentioned. The Motley Fool recommends eBay and recommends the following options: short October 2021 $70 calls on eBay. The Motley Fool has a disclosure policy.

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