Stock of the day 15/07/2015 – eBay Inc/Google Inc

With plenty of companies vying for investors’ attention, it’s the turn of eBay and Google to flaunt their second quarter wares on Wednesday.

It has been an impressive 2015 for eBay so far, but with the long awaited PayPal spin-off looming the company is entering a new, and potentially difficult, era. After opening the year at $56.28, a slump in the first few weeks of 2015 was recovered by a strong set of full year results on January 21st, when the company posted a 9% increase in revenue to $4.9 billion. By March 9th the stock had climbed to $60.79, but just before its first quarter results had slipped back to $55.56. Yet another strong earnings release towards the end of April helped the stock lift-off once again, and despite a slight wobble in May and June is currently trading at an all-time high of $64.29 (IT-Finance.com, 15/07/2015).


(Source: IT-Finance.com 15/07/2015)

However, and it is a pretty big however given that PayPal is about to be spun-off on Friday, eBay’s current price appears to be largely based on the strength of its payment service, not its soon-to-be central marketplace business. In its aforementioned April first quarter announcement, PayPal’s revenue surged by 14% to $2.1 billion; in a worrying comparison, eBay’s marketplace revenue slipped by 4% to $2 billion. This is the first time eBay’s 2002 purchase has eclipsed its parent company, and doesn’t bode well for the online-seller when its payment service provider sets out on its own path after trading on Friday.

Depressingly for eBay, once spun-off PayPal will replace the marketplace seller on the S&P 100, cementing a changing of the guard in a (sort of) Oedipal-father murder with the son ascending to a higher level. A new CEO (Devin Wenig) will arrive as PayPal disappears from eBay’s books, and has a tough task to reinvigorate a company that has been riding on the coat tails of its subsidiary for the last few years.

In terms of the company’s second quarter figures, eBay is expected to post a 5% year-on-year increase in earnings per share to $0.72 with a 2.8% jump in revenue to $4.49 billion. Of course, these numbers benefit hugely from the presence of PayPal, so eBay’s Q3 results could look decidedly different later in the year. eBay currently has a consensus rating of ‘hold’ with an average target price of $62.66.

By Google’s standards 2015 has been a bit disappointing, at least in terms of the speed of its market growth. After opening the year at $536.04 (bear in mind it underwent a 2-for-1 stock split in April 2014), Google overcame the market-wide mid-January slump to climb to $583.13 by the start of March, its highest price since the previous October. This period also saw the company’s Q4 and full year 2014 results, which missed analysts’ estimates despite seeing 15% growth in the former’s revenue to $18.1 billion with at 19% jump in the latter’s to $66 billion.


(Source: IT-Finance.com 15/07/2015)

The stock then took a tumble across March and most of April to a 3 month low of $525.61; however, Google’s first quarter results brought with them a 5.5% jump on the markets to $578.50 as the company posted another strong, if estimate missing, set of results. Revenue grew by 17% to $17.3 billion whilst operating income saw a 26% year-on-year leap to $4.45 billion.

Perhaps because these figures missed analysts’ predictions Google’s climb couldn’t last, and throughout May and June the company remained firmly in a $540 to $560 trading bracket. Yet reports of a hiring and spending curb last week were music to investors’ ears, with growing fears the company had been sinking too much money into expensive ‘moonshot’ projects being assuaged by the news, leaving Google at a current trading, and 2015 best, price of $585.51 (IT-Finance.com, 15/07/2015).

In regards to its second quarter results, Google is expected to post an 11.3% increase in revenue to $17.5 billion with a non-GAAP earnings per share of $6.70 from $6.08 for the same period last year. However, Google has a nasty habit of missing analyst expectations, so the actual figures it announces could be slightly different come Wednesday. Not that this has necessarily affected its post-earnings performance in the last few months, and Google goes into its Q2 results with a consensus rating of ‘buy’ with an average target price of $624.11.

Wednesday’s stock news:

There was a near 10% tumble for Entertainment One this morning with the distributor of The Walking Dead (and owner of Peppa Pig) suffering after a £90 million stock sale by major investor Marwyn sold 9% of its stake. The company is now trading at £3.27.

Despite posting a 6.5% increase in total sales in its preliminary full year results, JD Wetherspoon fell by nearly 7% to £7.17 this Wednesday. The reason for the slide was a mixture of shrinking operating margins, down 1.3% to 7%, alongside a rather hazy outlook from found Tim Martin, who said ‘we currently anticipate a trading performance similar to, or slightly above, the current year’ after claiming it was difficult to assess all of the factors affecting the company.