eBay Inc (NASDAQ:EBAY) actually beat consensus earnings estimates for the first quarter of 2013 by 1 cent, but underperformance on the top line caused the stock to fall on the day; it is currently down 6% since the beginning of April. Revenue actually grew 14% in the quarter versus a year earlier, with earnings up at a double-digit rate as well, though Q1 is generally soft for eBay Inc (NASDAQ:EBAY) and investors are likely more worried about what the revenue miss means for the business than pleased with the company’s financial performance. Marketplace revenue- for what might be called the core eBay business, though it represents only a little over half of sales- grew by 13% with a somewhat higher growth rate in the Payments segment (which includes PayPal).
The stock trades at 25 times trailing earnings, a level at which the market is counting on high growth for several years (therefore explaining why a revenue miss would be so troubling- good, sustainable growth rates there are necessary for improved earnings). Wall Street analysts expect $3.22 in earnings per share for 2014, which makes for a forward P/E of 16. eBay has been repurchasing shares- it used about half of its cash flow from operations last quarter in doing so- but even so the company will need to continue its high earnings growth rates in order to hit that target, and then will need to improve its net income further from there in order to justify the current valuation.
We track quarterly 13F filings by hedge funds as part of our work developing investment strategies (we have found, for example, that the most popular small cap stocks among hedge funds outperform the S&P 500 by 18 percentage points per year on average); this database can also be used to find individual managers who have liked eBay. Billionaire and Tiger Cub Stephen Mandel’s Lone Pine Capital reported a position of 8.5 million shares at the end of December, though the fund had been selling shares during the fourth quarter (find Mandel’s favorite stocks). SAC Capital Advisors, managed by billionaire Steve Cohen, increased its stake by 82% to a total of 4.6 million shares (see Cohen’s stock picks).
The closest peers for eBay Inc (NASDAQ:EBAY)’s marketplace business are Amazon.com, Inc. (NASDAQ:AMZN) and Overstock.com (NASDAQ:OSTK). Amazon is actually unprofitable on a trailing basis, though many investors insist that the company could elect to shift its focus to margins rather than growth at any time. Revenue growth has been good, but we don’t think it’s wise to rely on the scale of improvement that would be necessary for a stock with a forward P/E of more than 70 to become a good value. Overstock.com has more than tripled in price in the last year, and with earnings rising as well the trailing and forward P/Es are now a bit above 20. 31% of the float is held short per the most recent data, as many market players are skeptical that high growth rates can continue.
