eBay’s Earnings Miss, Bleak Guidance Send Stocks Plunging

Revenue grew 8% on an FX-Neutral basis and 6% on an as-reported basis to $2.21 billion

e1Online auction house eBay Inc. (NASDAQ: EBAY) announced its Q3 FY16 financial results on October 19th, 2016. In FY15, eBay enabled $82 billion of gross merchandise volume (GMV).

The San Jose, California-based company is a global commerce leader that connects various buyers and sellers worldwide. The company’s Marketplace platforms include its online marketplace ebay.com and the eBay mobile apps. The online ticket StubHub platform includes stubhub.com and the StubHub mobile apps. Its Classifieds platforms include Mobile.de, Kijiji, Gumtree, Marktplaats, eBay Classifieds, and others that offer online classifieds. eBay’s platforms enable users to find, buy, sell, and pay for items through various online, mobile, and offline channels, which include retailers, distributors, import and export companies, auctioneers, catalog and mail-order companies, classifieds, directories, and shopping channels. Read more about eBay’s financial results below.

Q3 FY16 financial highlights

During Q3 FY16, eBay delivered gross merchandise volume (GMV) of $20.11 billion, increasing 5% on a foreign exchange (FX)-neutral basis and 3% on an as-reported basis. Revenue for the reporting quarter was $2.21 billion, up 8% on an FX-neutral basis and 6% on an as-reported basis, beating average estimates of $2.19 billion.

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e3During Q3 FY16, eBay added over one million active buyers across its platforms, taking its total to 165 million global active buyers. eBay has revamped its platform to offer a bigger selection of products and more brands and to require sellers to give more details on products to attract younger shoppers. Through its structured-data initiative, eBay has made massive efforts to better categorize merchandise for a broader reach on search engines, speed up user buys and improve the overall shopping experience, while reducing the costs of stepping up traffic to the site.

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During Q3 FY16, eBay’s GAAP operating margin decreased to 24.4% compared to 27.5% for the same period last year. Non-GAAP operating margin decreased to 29.9% in Q3 FY16, compared to 31.9% for the same period last year.

Finally, eBay’s earnings are yet to rebound after it spun off PayPal Holdings Inc. (NASDAQ: PYPL) into its own publicly traded entity in Q3 FY15. The Company’s GAAP net income from continuing operations plunged 23% to $418 million, or $0.36 per diluted share, from $545 million, or $0.45 per diluted share, in the year-ago period. Non-GAAP net income from continuing operations fell 4% to $509 million, or $0.45 per diluted share, from $529 million, or $0.43 per diluted share, in the year-ago period.

e5Segmental highlights

During Q3 FY16, eBay’s Marketplace platforms delivered $19.0 billion of GMV and $1.8 billion of revenue. Marketplace revenue was up 5% on an FX-neutral basis and 2% on an as-reported basis, driven by GMV growth of 4% on an FX-neutral basis and 2% on an as-reported basis as well as growth in Marketing Services & Other revenue.

StubHub reported another strong quarter with GMV of $1.1 billion, up 23%, and revenue of $263 million, up 32%, aided by strength across concerts, theater and baseball as well as the continued benefit from ongoing product innovation. StubHub continued to drive innovation, expanding its virtual reality technology to more venues in the U.S., as well as launching a blended primary and secondary tickets experience with the Philadelphia 76ers.

e6The Classifieds platforms delivered another quarter of robust performance with revenue of $197 million, up 14% on an FX-neutral basis and 11% on an as-reported basis, primarily driven by the Automotive and Real Estate verticals across several key geographies. Classifieds began integrating tickets inventory from StubHub in Canada, while furthering efforts to integrate inventory from eBay in several markets.

Other highlights

Stock repurchases: eBay repurchased 16.5 million of its common stock for $500 million in Q3 FY16. As of September 30th, 2016, the Company’s total repurchase authorization remaining was $2.3 billion. So far during 2016, eBay has returned $2 billion of capital to shareholders in the form of share repurchases.

Cash flow: During Q3 FY16, eBay generated $802 million of operating cash flow and $617 million of free cash flow from continuing operations. The Company’s cash and cash equivalents and non-equity investments portfolio totaled $10.4 billion as of September 30th, 2016.

Introduction of Quick Sale: During Q2 FY16, eBay crossed the one billion live listings mark for the first time, reflecting its efforts to expand offerings to consumers, while enhancing its shopping platform to improve searches. Continuing with its initiatives to drive the most relevant shopping experiences for consumers, Marketplace delivered further enhancements to its mobile platform and introduced Quick Sale, a targeted consumer destination for selling mobile phones. Powered by eBay Valet, new Quick Sale service delivers a new standard of convenience and speed giving sellers a new way to tailor their online selling experience to their needs.

eBay also began to activate an updated strategy for the eBay brand and was recently ranked as number 32 in Interbrand’s Best Global Brands 2016 report.

Sale of stake in MercadoLibre: eBay decided to sell the majority of its stake in MercadoLibre Inc., an online commerce platform in Latin America. The sale will enable eBay to realize a significant gain on its investment, and use the net proceeds in a manner consistent with its capital allocation strategy.

Acquisitions

e7Despite being one of the forerunners of e-commerce, eBay has been facing intense competition from big-box online players such as Amazon.com Inc. (NASDAQ: AMZN) and Wal-Mart Stores Inc. (NYSE: WMT), which are growing at a faster clip. Hence, eBay recently announced its plans to acquire several companies to strengthen its technology and expand its geographical footprint. On October 5th, 2016, eBay announced an agreement to purchase Corrigon Ltd., a pioneer of visual search technologies, expected to contribute to the Marketplace platform’s structured data initiative.

Corrigon helps identify objects within an image, matching both visual and textual elements to ensure that the image is recognized, correctly classified and best-matched to its corresponding product. With more than one billion live listings on eBay’s platform, Corrigon’s expertise and technology will help match the best images to their products so that shoppers can be confident that what they buy is exactly what they see. Corrigon is the third acquisition in 2016 to further bolster eBay’s structured data efforts, following the acquisitions of SalesPredict and Expertmaker.

Guidance for Q4 FY16 and full year FY16

For the most important quarter of the year, Q4 FY16, eBay expects net revenue between $2.36 billion and $2.41 billion. Non-GAAP diluted EPS from continuing operations is forecasted in the range of $0.52 to $0.54 and GAAP diluted EPS from continuing operations in the range of $1.05 to $1.15. The dismal guidance in the most important shopping season of the year hammered down the stock by more than 10% on October 20th, 2016.

For the full year FY16, eBay expects net revenue between $8.95 billion and $9.0 billion. Non-GAAP diluted EPS from continuing operations is forecasted in the range of $1.85 to $1.90 and GAAP diluted EPS from continuing operations is projected in the range of $2.22 to $2.32.

Stock Performance

e8eBay’s stock tumbled to $29.02, losing 10.76% from its previous closing price of $32.52, at the close on Thursday, October 20th, 2016, having vacillated between an intraday high of $29.84 and a low of $28.75 during the session. The stock’s trading volume was at 52,578,423 for the day. The Company’s market cap was at $32.37 billion as of Thursday’s close.

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