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Why Is eBay (EBAY) Down 5.7% Since Last Earnings Report?

Zacks Equity Research
Below we focus on three top-ranked Northern mutual funds. Each has earned a Zacks Mutual Fund Rank 1 (Strong Buy).

A month has gone by since the last earnings report for eBay (EBAY). Shares have lost about 5.7% 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 the most recent earnings report in order to get a better handle on the important drivers.

eBay Surpasses Earnings and Revenue Estimates in Q1

eBay Inc. reported first-quarter 2019 pro-forma earnings of 67 cents, surpassing the Zacks Consensus Estimate by 4 cents. The reported figure also improved 26.4% year over year.

Gross revenues of $2.6 billion increased 6% year over year (up 4% on an Fx-neutral basis) and surpassed the Zacks Consensus Estimate of $2.58 billion.

The company continues to leverage structured data and Artificial Intelligence (AI) to improve user experience on its platform. Notably, this aided in the growth of active buyers on its platform, in turn driving GMV. Robust growth of Advertising and Payment platform drove eBay’s top-line growth.

Revenues and GMV

In the first quarter, the Marketplace platform accounted for$2.2 billion of revenues, up 3% year over year on a reported basis and 4% on an FX-Neutral basis. Marketplace GMV was $21.6 billion, down 4% year over year on a reported basis and 1% on a FX-Neutral basis. The increase was aided by continual expansion of new user experiences.

StubHub contributed $1 billion of GMV, down 3% on a year-over-year basis, and revenues of $230 million, flat from the year-ago quarter.

Classifieds platforms performed pretty well during the quarter, contributing $256 million to revenues, up 4% year over year and 12% on a FX-Neutral basis.

Total GMV of $22.6million in the first quarter was down 4% year over year on a reported basis and 1% on an Fx-neutral basis.

During the quarter, global active buyers/customers increased 4% from the year-ago period to 180 million.

Margins and Income

Pro-forma gross margin in the quarter was 77.3%, down 100 basis points (bps) year over year.

Adjusted operating expenses of $1.35 billion decreased 0.9% from the prior-year quarter. As a percentage of sales, sales and marketing and product development expenses decreased, while general & administrative costs increased.

Non-GAAP operating margin was 29.8% in the first quarter, up 190 bps year over year.

Balance Sheet and Cash Flow

eBay’s balance sheet is highly leveraged, with a long-term debt of $7.7 billion. Cash and short-term investments balance was $4.4billion at the end of the first quarter versus $4.9 billion in fourth-quarter 2018.

eBay generated $550 million in cash from operating activities and spent $182 million on capex. Free cash flow during the quarter was $368 million and the company repurchased shares worth $1.5 billion.

In addition, it paid $125 million in cash dividends during the first quarter.

Outlook

For the second quarter of 2019, eBay expects revenues to grow 2-4% on an Fx-neutral basis to $2.64-$2.69 billion. Non-GAAP earnings are expected within 61-63 cents. GAAP earnings per share from continuing operations are expected in the range of 41-45 cents.

eBay increased its full-year revenue guidance for 2019. The company now expects full-year revenues between $10.83 billion and $10.93 billion, representing Fx-neutral growth of 2- 3%.

Adjusted earnings per share are expected within $2.64-$2.70. 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, eBay has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, eBay has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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