EBay (EBAY) Q3 Earnings Match Estimates, Revenues Beat

eBay Inc. (NASDAQ: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.

Both top and bottom line growth was driven by strength across all three platforms – Marketplace, Classifieds and StubHub in the United States and internationally.

Shares, however, fell 5.9% in after-hours trading in response to the company’s weaker-than-expected fourth-quarter as well as annual earnings outlook.

At the call, management appeared impressed with the progress of the company transforming itself and the positive response of customers. eBay is leveraging on its structured data and Artificial Intelligence (AI) strength to build product catalogs, enhance mobile platform, roll out new browse inspired shopping journeys, enhance customer-to-customer (C2C) business and strengthen its brand.

It accelerated its AI efforts through structured data, personalization, image search technology and customer support effort in several areas.

In the third quarter, eBay rolled out group listings, a new way of searching that enables users to organize search results by products rather than listing. It partnered with Spring to offer a wide range of apparel and accessories through ebay.com. It has also extended its price matching program to international markets. eBay will soon launch Guaranteed Delivery program on 20 million items that arrive in three business days or less.

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 (NASDAQ:ETSY) , Alibaba (NYSE:BABA) and Facebook (NASDAQ:FB) .

However, expected results may take some time to show up due to weak global economy, slow e-commerce growth and increasing competition. Year to date, the stock has underperformed its industry, gaining only 27.9% compared with the industry’s gain of 52.7%.

Let’s delve deeper into the numbers

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.

eBay Inc. Revenue (TTM)

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 billion – $2.62 billion, better than the Zacks Consensus Estimate of $2.57 billion. Non-GAAP earnings are expected within 57 cents–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 cents - 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.

Zacks Rank

Currently, eBay carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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