Marketplaces Could Continue To Pull-Down eBay’s Q2 Earnings

eBay (NASDAQ:EBAY) is scheduled to report its earnings for the second quarter of 2015 on Thursday, July 16. Since the PayPal separation is scheduled for completion on July 17, this will be the company’s last earnings as a combined entity. As has been the trend over the past few quarters, we expect that the PayPal business drove the company’s earnings during Q2, as the marketplaces business likely continued to be beset by various challenges. While we expect FX-neutral top-line growth to range in the low single-digits for marketplaces business, the same for PayPal could come in at over 15%. In terms of profitability, we expect a slight year-over-year increase in margins on the back of recent cost cutting and efficiency improvement measures. We will be keenly tracking the earnings call this quarter, to know more about the planned strategic initiatives in both the eBay and PayPal businesses, post the separation.

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Marketplaces Segment Could Continue To Drag Earnings

We expect the marketplaces segment to be a key focus of this quarter’s earnings call, as the Wall Street is curious to learn how the management intends to accelerate growth in this segment in the wake of several challenges and ever-increasing competition in the online retail market. We expect this segment to report slow growth in currency-neutral terms for  the second quarter, mainly on account of continued traffic-related challenges resulting from the last year’s security breach and Google Panda update. Additionally, the revenue growth could come in negative in dollar-terms owing to continued appreciation of the U.S. dollar. This could also impact eBay’s cross-border trade business, as the U.S. is positioned as a net exporter within this segment.

According to data by ChannelAdvisor, eBay underperformed the broader e-commerce market during the second quarter, with same-stores sales growth being witnessed at 5.8%, 6.6%, and 7.2% during April, May and June respectively. This compared to 15% and 24.1% (average) increase for broader e-commerce market and Amazon respectively during the same quarter (as per Channel Advisor). ^[1]. In all likelihood, the company’s auction business significantly under-performed during this period.

Though eBay is making efforts to overcome these challenges by structuring product listings into catalogs, enhancing its focus on the core shoppers and deals business, and improving its data analytics and customer experience, we believe these steps could take multiple quarters before showing meaningful results. We will be looking for strategic updates regarding this strategy during the earnings call.

PayPal Could Report Strong Growth During The Second Quarter

In contrast to the weakness in the marketplaces segment, the payment business is likely to report  strong growth in both revenue and net total payment volume (TPV) during the second quarter. This was likely driven by robust increases in account additions and merchant services TPV, along with high demand in the Braintree business. Further, we expect mobile payments continued to outperform as its share in total payments volume likely crossed 30% during Q2 2015.

Rising competition in the mobile payments space from leading companies such as Apple, Samsung, Google and Facebook represents a threat to this business, and we’d looking for updates regarding how the company aims to tackle these risks as a standalone company in the coming future.

1. June 2015 ChannelAdvisor Same Store Sales (SSS) for eBay, Amazon, Google Shopping/PLA, CSE, Search and other e-commerce channels, Channel Advisor, July 7, 2015 [↩]