EBay Inc.'s (EBAY) All-Round Show Drives Q3 Earnings Beat

eBay Inc. (NASDAQ:EBAY) delivered strong third-quarter 2016 results, surpassing the Zacks Consensus Estimate on both metrics.

Earnings of 38 cents per share came ahead of the Zacks Consensus Estimate of 36 cents per share. Adjusted earnings per share exclude one-time items but include stock-based compensation expense.

Revenues were $2.22 billion compared with the Zacks Consensus Estimate of $2.18 billion.

The results were driven by continuous strong performance across Marketplace, StubHub and Classifieds.

eBay added 1 million active buyers in the third quarter taking the total to 165 million.

Management sounded upbeat about the pace of building a solid foundation of structured data and artificial intelligence, increasing personalizing capacities and enhancing mobile experience.

In the quarter, eBay acquired Corrigon Ltd., which it expects will contribute significantly to its Marketplace platform's structured data initiative. The company also closed the acquisitions of Ticket Utils and TicketbiS that are expected to improve seller tools. The company added Qualcomm (NASDAQ:QCOM), Mattel (NASDAQ:MAT), Fender and Magic Chef to its strategic brand partner’s list to attract more customers to its online properties.

The company has also been very active with product launch. It rolled out curated experiences in Fashion, Home and Garden and eBay ShopBot on Facebook Messenger for a better user experience.

StubHub rolled out a combined primary and secondary ticket experience for the Philadelphia 76ers, and enabled users to obtain support through a Skype chatbot. Seller hub continues to drive more engagement from consumer sellers.

eBay has also sold most of its stake in MercadoLibre, Inc., a move that is expected to realize considerable gain on investment.

eBay’s unique capabilities backed by technological improvements give it an edge over competitors such as Etsy (NASDAQ:ETSY) , Alibaba (NYSE:BABA) and Facebook (NASDAQ:FB) .

EBAY INC Price, Consensus and EPS Surprise

Let’s check out the numbers

Revenues

Gross revenue of $2.22 billion was up 5.6% on a year-over-year basis (up 8% on an Fx-neutral basis). In the third quarter, the Marketplace platform contributed $19.0 billion of gross merchandise volume (GMV) and $1.8 billion of revenues. On the other hand, StubHub also showed signs of accelerated growth with contribution of $ 1.1 billion of GMV, up 23% on a year-over-year basis, and revenues of $0.26 billion, up 32% on a year- over-year basis.

Classifieds platforms also performed well with contribution of $0.2 billion of revenues, up 14% on a year-over-year basis on an FX-Neutral basis.

Gross merchandise volume grew 5% year over year on an Fx-neutral basis. Active buyers/customers totaled 165 million, up 3% from the year-ago quarter.

Margins

Pro-forma gross margin for the quarter was 77.8%, down 175 basis points (bps) year over year and 26 bps sequentially.

Cost of revenues increased 15% on a year-over-year basis primarily due to the addition of PayPal processing costs and the impact of foreign exchange.

Adjusted operating expenses of $1.17 billion increased 6.8% from the prior-year quarter but decreased 3.6% sequentially. Operating margin shrank 232 bps year over year but was up 140 bps sequentially to 25.1%.

Excluding the impact of intangibles amortization and other items on a tax-adjusted basis, pro-forma net income came in at $429 million compared with $530 million in the year-ago period.

Including the special items, GAAP net income was $418 million (36 cents per share) compared with $545 million (45 cents per share) in the year-ago quarter.

Balance Sheet and Cash Flow

eBay’s balance sheet is highly leveraged, with total debt of $9.03 billion eclipsing the cash and short-term investments balance of $8.05 billion. The company generated $802 million in cash from continuing operations and spent $185 million on capex. Share repurchases totaled $501 million.

Outlook

For the fourth quarter of 2016, eBay expects revenues to grow 4%–6% on an Fx-neutral basis to $2.36 billion – $2.41 billion. The Zacks Consensus Estimate is pegged at $2.40 billion. Non-GAAP earnings are expected within 52 cents–54 cents. The Zacks Consensus Estimate is pegged at 47 cents. GAAP earnings per share from continuing operations are expected in the range of $1.05 - $1.15.

In 2016, eBay expects revenues to grow 6%-7% on an Fx-neutral basis to $8.95 billion – $9.0 billion.

Zacks Rank

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

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