eBay Shifts Its Focus to New Customers, Payments, and Advertising

eBay released strong third-quarter 2018 results, including sustained momentum from its core marketplace business, some promising new partnerships, and plans to increase its presence in the payments and advertising spaces.

With shares up nearly 6 percent in early trading as of this writing, let’s take a closer look at how the e-commerce giant started the second half, and what we should expect in the coming months.

What happened with eBay this quarter?

  • Adjusted for unusual items, eBay’s non-GAAP net income from continuing operations rose 8 percent year over year to USD 554 million, or USD 0.56 per share.
  • For perspective, revenue was near the low end of eBay’s guidance provided in July between USD 2.64 billion and USD 2.69 billion. But adjusted earnings were at the high end of guidance for a range of USD 0.54 to USD 0.56 per share.
  • Gross merchandise volume (GMV) increased 5 percent year over year to USD 22.7 billion.
  • Active buyers increased 4 percent year over year across all platforms to 177 million, up from 175 million last quarter.
  • Marketplace platforms revenue grew 6 percent to USD 2.1 billion, on a 5 percent increase in GMV to USD 21.5 billion.
  • Stub Hub revenue climbed 7 percent to USD 291 million, driven by a 7 percent increase in GMV to USD 1.2 billion.
  • Classifieds revenue grew 8 percent to USD 254 million.
  • eBay generated operating cash flow of USD 560 million, and free cash flow of USD 381 million.
  • eBay began rolling out its new payments experience in the U.S. last month, intermediating USD 38 million of GMV so far. It also started accepting Apple Pay through the new experience.
  • On the advertising front, eBay expanded its Promoted Listings placements with more than 400,000 sellers promoting over 160 million listings.
  • It struck a new partnership with Square Capital to enable U.S. sellers to access up to USD 100,000 in funding in as short a time as one day to grow their businesses.
  • eBay completed its previously announced sale of its equity investment in Flipkart for net proceeds of USD 1.0 billion, ending its strategic relationship with the company.
  • Two weeks ago, eBay announced its intent to acquire U.K.-based classifieds leader Motors.co.uk for an undisclosed sum.
  • It repurchased 29 million shares for USD 1 billion this quarter, leaving USD 4.7 billion remaining under its buyback authorization.

What management had to say

CEO Devin Wenig stated: “This quarter we continued to make foundational investments to improve the long-term competitiveness of our marketplace while setting the stage for significant growth opportunities. We will continue to innovate the customer experience while executing our growth initiatives in Payments and Advertising to position eBay for future success.”

Wenig elaborated during the subsequent conference call:

We will continue to focus on delivering significant product experienced changes for new customers while evolving new experience for our existing base of users at a more measured pace. Similarly, we will continue to market our brand, but we plan to target our marketing to focus more heavily on acquiring new buyers, while reducing our overall investment. We expect that this will result in slower growth for a period of time as we grow our user base and change the mix of customers. However, this will also allow us to deliver strong earnings growth over this period of time through operational margin expansion and ongoing aggressive capital return, while positioning the business for stronger growth in 2020, as payments and advertising continue to ramp.

Looking ahead

For the fourth quarter of 2018, eBay sees revenue between USD 2.85 billion and USD 2.89 billion, good for organic growth of 4 percent to 5 percent. Fourth-quarter adjusted earnings should be in the range of USD 0.67 to USD 0.69.

As such, and keeping in mind Wenig’s comments on its fundamental business shift above, eBay reduced its full-year outlook to call for 2018 revenue between USD 10.72 billion and USD 10.76 billion (down from between USD 10.75 billion and USD 10.85 billion before). eBay also narrowed its guidance for 2018 adjusted EPS to be in the range of USD 2.29 to USD 2.31 (from USD 2.28 to USD 2.32 previously).

In the end, it seems the market is more than willing to accept eBay’s decision to accept more modest top-line growth in the near term, especially if it means longer-term growth with a healthier, more profitable business in the meantime.— The Motley Fool

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