It has been about a month since the last earnings report for eBay (EBAY). Shares have lost about 1.9% 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 its most recent earnings report in order to get a better handle on the important catalysts.
eBay Surpasses Earnings and Revenue Estimates in Q3
eBay reported third-quarter 2019 non-GAAP earnings of 67 cents, beating the Zacks Consensus Estimate by 2 cents. The reported figure also improved 19.6% year over year.
Net revenues of $2.65 billion also surpassed the Zacks Consensus Estimate of $2.64 billion. The top line was flat on a year-over-year basis (up 2% on an FX-neutral basis).
The company witnessed strong performance by its Classifieds platform during the reported quarter. Further, eBay experienced strong momentum across its managed payments offerings, which processed over $500 million worth of payments during the third quarter.
However, StubHub volume failed to exhibit year-over-year growth which affected eBay’s gross merchandise volume (GMV).
eBay’s shares have plunged almost 8% in pre-market trading which can be blamed on the disappointing fourth-quarter guidance.
Nevertheless, the company’s introduction of tools, advanced features and seller protections is likely to aid its momentum among customers and sellers in the near term.
Revenues and GMV
In the second quarter, the Marketplace platform accounted for $2.1, down 1% year over year on a reported basis and up 1% on an FX-Neutral basis. Further, Marketplace GMV was $20.5 billion, down 5% year over year on a reported basis and 2% on a FX-Neutral basis.
StubHub contributed $1.2 billion of GMV, flat with the year-ago quarter level. It generated $306 million of revenues, up 5% on a year-over-year basis.
The Classifieds platforms performed well during the quarter, contributing $265 million to revenues, up 4% year over year on a reported basis and 8% on an FX-Neutral basis.
Total GMV of $21.7 million in the third quarter was down 4% year over year on a reported basis and 2% on an FX-neutral basis.
During the quarter, global active buyers/customers increased 4% from the year-ago period to 183 million.
Margins and Income
In the third quarter, eBay’s gross margin was 76.4%, down 60 basis points (bps) year over year.
Adjusted operating expenses of $1.49 billion increased 0.3% from the prior-year quarter. This was due to the 1.9% and 14.1% respective hike in product development and general & administrative expenses.
Non-GAAP operating margin was 26.6% in the third quarter, up 20 bps year over year.
Balance Sheet and Cash Flow
As of Sep 30, 2019, cash equivalents and short-term investments came in at $3.1 billion, down from $4.5 billion as on Jun 30, 2019.
Further, eBay’s balance sheet is highly leveraged, with a long-term debt of $7.2 billion at the end of the third quarter.
The company generated $1 billion of cash from operating activities and had free cash flow of $913 million during the reported quarter. It made dividend payments worth $115 million.
For the fourth quarter of 2019, eBay expects revenues within $2.77-$2.82 billion.
Non-GAAP earnings are expected within 73-76 cents.
For 2019, the company expects revenues between $10.75 billion and $10.80 billion, indicating FX-neutral growth of 2-3%.
Adjusted earnings per share are expected within $2.75-$2.78.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
Currently, eBay has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. 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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