E-commerce giant eBay (NASDAQ:EBAY) is scheduled to release its fourth quarter and full year results for fiscal 2013 on Wednesday, Jan 22 (tomorrow). In the past four quarters, eBay has beaten analysts’ estimates three times. While this presents the perfect backdrop for continued impressive results, investors need to move beyond the typical Wall Street rhetoric (impressive growth, good margins) and look deeper.

Moving Past The ‘Catch-Up Narrative’

It is no secret that eBay’s business is growing. More notably, the e-commerce bigwig is recording growth in the areas that matter. In the third quarter of 2013, for instance, mobile enabled commerce volume jumped 75 percent, bringing the wider mobile strategy to greater focus.

However, all the gains that eBay has made in the past add on to the ‘catch-up narrative’, which simply stacks eBay against leading online retailer Amazon (NASDAQ: AMZN) and explains how the former is filling the competitive gap. Admittedly, eBay is gaining ground compared with Amazon. Its eBay shopping.com website, for instance, challenges Amazon’s comparison-shopping services. Just like Amazon has same-day deliveries, eBay also has its own similar service offered through the e-Bay Now app. In fact, e-Bay’s same-day delivery service (e-Bay Now) was free during the holiday season.

Although staying competitive is a plus, it only presents incremental growth. And this doesn’t offer any incentive in today’s choppy markets. Given the current valuations, investors are looking for companies that can deliver exponential, rather than incremental, growth.

The Numbers That Really Matter

When eBay announces its earnings tomorrow, investors should go beyond the typically top line/bottom line analysis and look at how eBay’s cash flows and debt levels are fairing. Why is this important? eBay has the potential to unlock great growth (the exponential growth we are talking about) with its interactive shopping screens (which I will explain in a bit). However, to achieve this, it needs to have high cash flows and low debt levels. This is because the whole interactive shopping screen concept requires heavy capital investments.

Just to establish some context, the interactive shopping screen concept involves eBay partnering with retailers and brick-and-mortar stores to build large screens in malls that allow users to actively engage with a virtual storefront, select items they want to shop and pay via mobile. Already, eBay has partnered with Sony, Tom’s and Rebecca Minkoff.

As eBay’s Vice President of innovation and New Ventures Steve Yankovich reveals in an exclusive interview with Bloomberg, eBay is currently working with leading manufacturer of glass used in consumer tech devices, Corning Inc.

Essentially, there are technologies in the pipeline that can turn any glass surface-from furniture, to even your oven door- into a touch screen interface. The scale on which this technology can be implemented presents a huge opportunity for eBay as it reinvents the whole idea of mobile shopping. In addition, increased interactivity allows eBay to build data bases that can be used to develop a personalized system, potentially opening up a realm of personalized services (that warrant premium prices) and even advertising opportunities.

Clearly, the interactive shopping screen concept has the potential to unlock exponential growth for eBay. However, it requires heavy capital investment. Lower debt levels therefore allow eBay to comfortably take on more debt in the future to support such expensive innovations. High cash flows similarly present an opportunity for eBay to support its investments more evenly (equity, cash, debt). This allows eBay to actively control debt levels and utilize shareholder equity, thereby minimizing stock volatility.

Takeaway

In the past three years, eBay’s cash and cash equivalents have been somewhat inconsistent; increasing about $2.1 billion between 2011 and 2012, having decreased by around $886 million between 2010 and 2011. All along however, liabilities have steadily increased, for instance, rising from $9.3 billion in 2011 to $16.2 billion in 2012. In tomorrow’s earnings, investors should look out for eBay’s cash flows and debt position as these two measures have the ability to greatly impact its long-term growth.

Disclosure: Author represents that he has no position in any stocks mentioned in this article at the time this article was submitted.