Analyst Expectations

We are forecasting revenues of $2.15 billion and EPS of $.38. This would represent a 2% increase in revenues from last year's $2.12 billion in the same period. The current analyst consensus estimates calls for revenues of $2.14 billion and EPS of $.37. On July 22, the company provided third quarter 2009 revenue guidance to $2.05 - $2.15 billion and $.34 - $.36 EPS.

For the first time in several quarters, we expect to see eBay post y/y revenue growth. Traffic in the third quarter appears to have increased by 8% y/y based on Compete data. While consumers still have not returned to their pre-recession shopping habits, consumer confidence appears to be growing.

This quarter should mark a turning point for eBay as they should be able to post nice growth off of easy comps in the next few quarters. Investors seem to be returning to the stock as well, with eBay's stock price trading near its 52-week high. Despite the difficult retail environment, investors are being drawn to eBay's attractive valuation.

Share Performance

Since the beginning of the year, eBay's shares have spiked 79%. In 2008, EBAY's shares fell nearly 58% and underperformed the 34% decline in the Dow Jones industrial average.

Valuation

Shares are now trading at 15x consensus 2010 EPS estimates. This is a discount to the relative valuations of their peer group. While eBay's stock price has risen dramatically over the last few months, the internet stock still appears attractively valued based on the relative valuations of their peer group.

Recommendation: Buy with a $30 price target