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A month has gone by since the last earnings report for eBay (EBAY). Shares have lost about 12.7% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is eBay due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
eBay Surpasses Earnings and Revenue Estimates in Q4
eBay reported fourth-quarter 2020 non-GAAP earnings of 86 cents per share, beating the Zacks Consensus Estimate by 3.6%. The bottom line also improved 30.3% year over year and1.2% sequentially.
Net revenues of $2.9 billion surpassed the Zacks Consensus Estimate of $2.7 billion. Further, the figure increased 28% from the year-ago quarter on both reported and FX-neutral basis. Also, the figure rose 10% sequentially.
Year-over-year growth in the top line was primarily driven by solid momentum across the Marketplace platform. Further, accelerating gross merchandise volume (“GMV”) of the company contributed significantly to the performance.
Further, the growing adoption of its managed payments remained a major positive. The number of sellers migrated to managed payments exceeded 1 million in the reported quarter out of which more than 50% was done in the United States. Notably, managed payment offering processed 38% of on-platform volumes globally during the fourth quarter.
Further, eBay’s Promoted Listings delivered robust performance by generating revenues of $215 million, which grew 60% on a reported basis and 57% on a FX-neutral basis from the prior-year quarter.
Additionally, the company witnessed year-over-year growth of 7% in the active buyer base, which stood at 185 million at the end of the fourth quarter. Notably, strong momentum across new and reactivated customers was a tailwind.
The coronavirus-led boom in online retail space significantly benefited the company during the holiday season.
The company’s growing initiatives toward strengthening managed payment offerings remain major positives. Further, eBay remains optimistic regarding growth initiatives, which are based on enhancing the seller experience by offering innovative seller tools and delivering a better buyer experience by utilizing structured data.
Additionally, strength across the Marketplace platform, courtesy of expanding buyer base and increasing traffic, is a positive.
Further, eBay, which entered a definitive agreement to sell Classifieds to Adevinta, is progressing well to complete the ongoing transfer by first-quarter 2021. Notably, Classifieds now falls under discontinued operations of the company.
The company’s total GMV of $26.6 billion in the fourth quarter exhibited year-over-year growth of 21% and 18% on a reported and FX-neutral basis, respectively. Further, the figure surpassed the Zacks Consensus Estimate of $24.9 billion.
Notably, eBay’s GMV is entirely generated by the Marketplace platform after the sale of StubHub.
Marketplace GMV is categorized into two parts:
U.S. GMV totaled $9.6 billion, which accounted for 36.2% of total GMV, up 25% from the year-ago quarter.
International GMV was $16.9 billion, which accounted for 63.8% of total GMV, grew 19% on a year-over-year basis.
Revenues in Detail
eBay’s revenues are classified into two types:
Net Transaction: The company reported net transaction revenues of $2.6 billion in the quarter under review, accounting for 90.6% of the total revenues. Further, the figure was up 31% from the year-ago quarter. Notably, net transaction revenues are completely generated by the Marketplace platform.
Marketing Services and Other: eBay generated $270 million of total marketing services and other revenues (9.4% of total revenues), which was up 5% from the year-ago quarter.
In the fourth quarter, eBay’s gross margin was 74.1%, contracting 100 basis points (bps) year over year.
Operating expenses of $1.4 billion contracted 320 bps as a percentage of net revenues from the year-ago quarter.
Non-GAAP operating margin was 28.1% in the fourth quarter, expanding 20 bps year over year.
Balance Sheet & Cash Flow
As of Dec 31, 2020, cash equivalents and short-term investments were $3.8 billion, up from $3.7billion as of Sep 30, 2020.
Further, long-term debt was$7.74 billion at the end of the reported quarter compared with $7.73 billion at the end of the last reported quarter.
The company generated $758 million of cash from operating activities during the fourth quarter, significantly up from $105 million in the previous quarter.
Its free cash flow stood at$715 million in the reported quarter.
Further, the company repurchased $419 million worth of shares and paid out dividends of $110 million in the fourth quarter.
For first-quarter 2021, eBay expects net revenues of $2.94-$2.99 billion. On a FX-neutral basis, year-over-year growth in revenues is anticipated to be 35-37%.
Non-GAAP earnings are anticipated to be $1.03-$1.08 per share.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 22.9% due to these changes.
Currently, eBay has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise eBay has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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