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eBay (EBAY) Beats Earnings and Revenue Estimates in Q1

Zacks

eBay Inc.’s EBAY first-quarter 2017 earnings and revenues came ahead of expectations.

Earnings of 43 cents per share surpassed the Zacks Consensus Estimate by 3 cents. Adjusted earnings per share exclude one-time items but include stock-based compensation expense.

Revenues of $2.2 billion beat the Zacks Consensus Estimate by a slight margin and came ahead of the company’s guidance at the mid-point.

The better-than-expected results were driven by strength in international markets, growth of active buyers, integration of the Ticketbis acquisition, expansion of new user experience and brand advertising. eBay added 2 million active buyers in the first quarter taking the total to 169 million.


eBay is currently replatforming itself and there was significant progress on this front in the first quarter. The company accelerated its efforts by building product catalogs on structured data, enhancing mobile platform, rolling out new browse inspired shopping journeys, rejuvenating customer-to-customer (C2C) business and strengthening its brand.

In the first quarter, Marketplace rolled out a number of new consumer experiences built on eBay’s structured data efforts. The company also rolled out a new personalized homepage in Netherlands and announced new services like Guaranteed Delivery program on 20 million items that arrive in three days or less. An authentication program to enhance consumer confidence related to high-end merchandise purchase was also introduced.

Further, StubHub became the official ticket resale marketplace for the Los Angeles Angels and Toronto Blue Jays. Classifieds launched a personalized homepage feed on Marktplaats.nl and continued integrating inventory with the Marketplace platform across multiple regions.

At the call, management sounded upbeat about its recent deal with Flipkart and expects it to help eBay increase penetration in India.

Overall, we remain positive on 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.

However, expected results may take some time to show up due to weak global economy, slow e-commerce growth and increasing competition. Over the last one year, the stock underperformed the Zacks Internet – Commerce industry. It gained 36.9% compared with the industry’s gain of 37.4%.

eBay Inc. Price, Consensus and EPS Surprise

Let’s delve deeper into the numbers

Revenues

Gross revenues of $2.2 billion were up 3.7% on a year-over-year basis (up 7% on an Fx-neutral basis). In the first quarter, the Marketplace platform contributed $20 billion of gross merchandise volume (GMV) and $1.8 billion of revenues. Marketplace GMV grew 2% year over year on a reported basis and 5% on an FX-Neutral basis. On the other hand, StubHub also showed signs of accelerated growth with contribution of $916 million of GMV, up 6% on a year-over-year basis, and revenues of $210 million, up 18% year over year on a reported basis and 19% on an FX-Neutral basis.

Classifieds platforms also performed well with contribution of $199 million of revenues, up 7% year over year on a reported basis and 10% on an FX-Neutral basis.

Gross merchandise volume grew 2% year over year on a reported basis and 5% on an Fx-neutral basis. Active buyers/customers increased 4.3% from the year-ago quarter.

Margins and Income

Pro-forma gross margin for the quarter was 77.1%, down 78 basis points (bps) year over year and 74 bps sequentially.

Cost of revenues increased 8% on a year-over-year basis primarily due to expenses associated with TicketbiS operations and the expansion of first-party inventory program in Korea.

Adjusted operating expenses of $1.1 billion increased 10.4% from the prior-year quarter but decreased 5.2% sequentially. Operating margin shrank 390 bps year over year and 196 bps sequentially to 25.3%.

Excluding the impact of intangibles amortization and other items on a tax-adjusted basis, pro-forma net income came in at $467 million compared with $481 million in the year-ago period.

Including the special items, GAAP net income was $1.03 billion (94 cents per share) compared with $482 million (41 cents per share) in the year-ago quarter.

Balance Sheet and Cash Flow

eBay’s balance sheet is highly leveraged, with total debt of $9 billion eclipsing cash and short-term investments balance of $6.8 billion. The company generated $582 million in cash from operating activities and spent $135 million on capex. Share repurchases were $350 million in the quarter.

Outlook

For the second quarter of 2017, eBay expects revenues to grow 5%–7% on a Fx-neutral basis to $2.28 billion – $2.32 billion. The Zacks Consensus Estimate is pegged at $2.32 billion. Non-GAAP earnings are expected within 43 cents–45 cents. The Zacks Consensus Estimate is pegged at 39 cents. GAAP earnings per share from continuing operations are expected in the range of 20 cents – 40 cents.

In 2017, eBay expects revenues to grow 6%-8% on an Fx-neutral basis to $9.3 billion – $9.5 billion.

Zacks Rank

Currently, eBay carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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