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eBay (EBAY) Beats Q2 Earnings Estimates, Misses on Revenues

Zacks Equity Research

eBay Inc.’s EBAY second-quarter 2018 earnings surpassed the Zacks Consensus Estimate by 2 cents. Pro-forma earnings of 53 cents improved 18% year over year.

Gross revenues of $2.64 billion increased 9.1% year over year (up 6% on an Fx-neutral basis) and were at the lower end of the guided range of $2.64-$2.68 billion. Revenues missed the Zacks Consensus Estimate of $2.66 billion.

Shares lost 5.6% in after-hours trading in response to the company’s weaker-than-expected revenue growth. Also, eBay reduced its full-year revenue guidance. In the past 12 months, the stock has gained only 1.27%, underperforming its industry’s growth of 44%.

On the call, management sounded impressed with the progress of the company’s transformation and positive response of customers to it. eBay is leveraging on its structured data and Artificial Intelligence (AI) strength to build product catalogs, enhance mobile platform, roll out new browse-inspired shopping journeys, enhance customer-to-customer (C2C) business and strengthen brand.

It accelerated its AI efforts through structured data, personalization, image search technology, and customer support initiatives in several areas.

During the quarter, eBay completed the acquisition of Giosis' Japan business, including the Qoo10.jp platform. The deal expands eBay's footprint in Japan. The company announced its intention to sell its holdings in Flipkart and plans to relaunch eBay India with initial focus on  cross-border trade opportunity.

Overall, we remain positive about eBay’s replatforming and brand enhancement initiatives. Its unique capabilities backed by technological improvements give it an edge over competitors such as Etsy ETSY, Alibaba BABA and Facebook FB.

Revenues and GMV

In the second quarter, the Marketplace platform contributed $22.6 billion of gross merchandise volume (GMV) and $2.1 billion in revenues. Marketplace GMV grew 11% year over year on a reported basis and 7% on an FX-Neutral basis. The increase was aided by continual expansion of new user experiences.

StubHub contributed $1.1 billion of GMV, up 5% on a year-over-year basis, and revenues of $246 million, which increased 4% year over year. Though revenues marked an increase, it was StubHub’s slowest recorded growth since the second quarter of 2017 due to lower ticket sales at major U.S. sporting events.

Classifieds platforms performed well with contribution of $259 million of revenues, up 18% year over year and 10% on a FX-Neutral basis.

Total GMV of $23.6 million in the second quarter grew 10% year over year on a reported basis.

During the quarter, global active buyers/customers increased 4% from the year-ago quarter to 175 million.

Margins and Income

Pro-forma gross margin in the quarter was 77.4%, up 60 basis points (bps) year over year.

Adjusted operating expenses of $1.6 billion increased 19.2% from the prior-year quarter. Pro-forma operating margin was 25.2%, down 120 bps year over year. The decrease was due to increased investment in sales and marketing, and product development.

GAAP net income was $6.4 billion compared with $0.29 million in the year-ago quarter.

Balance Sheet and Cash Flow

eBay’s balance sheet is highly leveraged, with long-term debt of $9.2 billion. Cash and short-term investments balance was $4 billion at the end of second quarter versus $4.8 billion in the prior quarter.

eBay generated $372 million in cash from operating activities and spent $184 million on capex. Free cash flow during the quarter was $188 million and the company repurchased shares worth $1 billion.

Outlook

For the third quarter of 2018, eBay expects revenues to grow 5-7% on an Fx-neutral basis to $2.64-$2.69 billion. The Zacks Consensus Estimate for third-quarter revenues is pegged at $2.73 billion. Non-GAAP earnings are expected within 54-56 cents and the Zacks Consensus Estimate is pegged at 56 cents. GAAP earnings per share from continuing operations are expected in the range of 37-41 cents.

eBay decreased its full-year revenue guidance for 2018. The company now expects full-year revenues between $10.75 billion and $10.85 billion versus previous guided range of $10.9-$11.1 billion. The Zacks Consensus Estimate is pegged at $10.97.

Adjusted earnings per share are expected between $2.28 and $2.32 versus prior guidance within $2.25-$2.30. The Zacks Consensus Estimate is pegged at $2.28.

eBay Inc. Price, Consensus and EPS Surprise

 

eBay Inc. Price, Consensus and EPS Surprise | eBay Inc. Quote

Zacks Rank

Currently, eBay carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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