Best stocks to invest in – Sales Guidance Soft at eBay: Buy These ETFs on the Dip?



Best stocks to invest in

E-commerce giant eBay Inc (EBAY) came up with fourth-quarter 2015 results after the closing bell on January 27. Though the company surpassed the Zacks Consensus Estimate on both earnings and revenues, a dull outlook dampened investors’ mood. Shares slumped 12.3% following the announcement.

Earnings per share came in at $0.46 (excluding nonrecurring items of $0.06), beating the estimate by $0.03.  Revenues of $2.322 billion also came ahead of our estimate of $2.315 billion. Also, its active buyer base grew 5% year over year to 162 million.

eBay’s Marketplaces segment generated revenues from the sale of goods available on eBay properties, recording a 5% decline in net transaction revenues. However, as expected, pricing was an issue for the company which is why on the margin front, the e-commerce giant clearly underperformed. The non-GAAP operating margin was 230 bps down to 34.4% in the quarter.

Weak Sales Guidance

Though the story was decent so far, the guidance took a beating. For the first quarter of 2016, the company projected net revenues in the range of $2.05–$2.10 billion, which is below the Zacks Consensus Estimate of $2.155 billion. For full-year 2016, the company expects net revenue of $8.5–$8.8 billion while the Zacks Consensus Estimate is pegged at $8.981 billion.

For the first quarter, the company’s non-GAAP earnings per share are guided in the range of $0.43–$0.45. For 2016, non-GAAP earnings per diluted share are expected within $1.82–$1.87.


Market Impact

The stock shed about 12.3% after hours on January 27. The results put some ETFs with considerable exposure in eBay in focus. These funds are highlighted below:

PowerShares Nasdaq Internet Portfolio (PNQI)

This fund follows the Nasdaq Internet Index, giving investors exposure to the broad Internet industry. The fund holds about 92 stocks in its basket with AUM of $252 million while charging 60 bps in fees per year (read: ETFs to Buy on Netflix Huge Q4 Earnings Beat).

The in-focus eBay occupies the seventh position with a 4.15% allocation. In terms of industrial exposure, Internet software and services makes up for more than two-thirds of the basket, followed by Internet retail. PNQI lost nearly 12% in the last three months (as of January 27, 2016). The fund has a Zacks ETF Rank #2 (Buy).

First Trust Dow Jones Internet Index (FDN)

This is one of the most popular and liquid ETFs in the broad tech space with AUM of over $3.55 billion. The fund tracks the Dow Jones Internet Index and charges 54 bps in fees per year.

In total, the fund holds 42 stocks in its basket with the in-focus eBay taking the eighth spot with a 4.30% share. From a sector look, information technology accounts for about 70.5% of the portfolio while consumer discretionary makes up 22%. The ETF was down about 14% in the last three months. The fund has a Zacks ETF Rank #1 (Strong Buy) with a High risk outlook (read: Internet ETFs to Buy After the Latest Sell-Off).

Bottom Line

Although eBay currently carries a Zacks Rank #2 (Buy), the rank is subject to change following the recent earnings.  However, investors should note that Internet commerce – the industry eBay operates in – presently resides in the top 28% allocation of Zacks Industry Rank.

The company itself is also striving hard to turn around by adopting every possible measure. Plus, the stock has a Value and Momentum score of ‘B’ each. All these point to a moderately bullish long-term outlook.

So, investors counting on the long-term potential in the space can use the recent plunge in eBay shares as an entry point. However, an ETF approach may be better – at least it can cover up eBay’s short-term weakness with some other components’ strength.

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EBAY INC (EBAY): Free Stock Analysis Report
 
PWRSH-ND INTRNT (PNQI): ETF Research Reports
 
FT-DJ INTRNT IX (FDN): ETF Research Reports
 
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