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Why Is eBay (EBAY) Down 6.3% Since the Last Earnings Report?

Zacks Equity Research
Cleveland-Cliffs (CLF) expects to leverage the acquired real estate interests for developing a financially sustainable plan for the site.

It has been more than a month since the last earnings report for eBay Inc. EBAY. Shares have lost about 6.3% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it 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.

Recent Earnings

eBay reported decent third-quarter 2017 results with earnings matching the Zacks Consensus Estimate and revenues beating the same by a slight margin. Pro forma earnings of 48 cents improved 6.7% year over year. Gross revenues of $2.41 billion were up 8.7% on a year-over-year basis (up 8% on an Fx-neutral basis) and came ahead of the guided range.

Revenues and GMV

In the third quarter, the Marketplace platform contributed $20.5 billion of gross merchandise volume (GMV) and $1.9 billion of revenues. Marketplace GMV grew 9% year over year on a reported basis and 7% on an FX-Neutral basis. StubHub made a contribution of $1.2 billion of GMV, up 2% on a year-over-year basis, and revenues of $275 million, up 5% year over year. Classifieds platforms also performed well with contribution of $235 million of revenues, up 19% year over year on a reported basis and 13% on an FX-Neutral basis.

GMV of $21.7 million grew 8% year over year on a reported basis and 7% on an Fx-neutral basis. GMV growth was fastest since 2014. Active buyers/customers increased 5% from the year-ago quarter to 168 million. This figure excludes domestic active buyers in India that eBay is no longer reporting after the sale of its India business to Flipkart.

Margins and Income

Pro-forma gross margin for the quarter was 77.2%, down 64 basis points (bps) year over year but up 101 bps sequentially. Cost of revenues increased 11.6% on a year-over-year basis primarily due to first-party inventory program in Korea. Adjusted operating expenses of $1.1 billion decreased 1.9% from the prior-year quarter and 10.7% sequentially. Pro-forma operating margin was 29.6%, down 30 bps year over year but up 230 bps sequentially. GAAP net income was $523 million (48 cents per share) compared with $418 million (36 cents per share) in the year-ago quarter.

Balance Sheet and Cash Flow

eBay’s balance sheet is highly leveraged, with total debt of $10 billion eclipsing cash and short-term investments balance of $6 billion. The company generated $877 million in cash from operating activities and spent $157 million on capex. Share repurchases were $907 million in the quarter.

Outlook

For the fourth quarter of 2017, eBay expects revenues to grow 6%–8% on an Fx-neutral basis to $2.58-$2.62 billion, better than the Zacks Consensus Estimate of $2.57 billion. Non-GAAP earnings are expected within 57-59 cents. The mid-point of the range is lower than the Zacks Consensus Estimate of 59 cents. GAAP earnings per share from continuing operations are expected in the range of 40-45 cents.

eBay revised its full-year guidance. The company now expects full-year revenues between $9.53 billion and $9.57 billion, up from its previous range of $9.3 billion to $9.5 billion and better than the Zacks Consensus Estimate of $9.49. Adjusted earnings per share are expected between $1.99 and $2.01 compared with its previous range of $1.98 to $2.03. The Zacks Consensus Estimate is pegged at $2.01.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the past month as none of them issued any earnings estimate revisions.

VGM Scores

At this time, the stock has a poor Growth Score of F, however its Momentum is doing a lot better with a B. Charting a somewhat similar path, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for momentum investors than value investors.

Outlook

The stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.


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