eBay Mid Year Review: Stock Up 10% YTD On Improving Margins, Free Cash Flow

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eBay‘s (NASDAQ:EBAY) stock is up 19% in the last year and over 10% year-to-date (YTD) following strong second quarter results and optimistic full year guidance. In the first six months of the year, eBay’s top line grew 5% year-over-year (y-o-y) to about $4.4 billion, driven by strong growth in StubHub and marketing and advertising revenue. Driven by a 35% decline in general and administrative costs, the company’s operating income grew 20% to over $1.1 billion in the first six months.

ebay-6Devin N. Wenig, eBay’s President and CEO, stated earlier this year that the company’s strategy was to maintain a low-to-mid single digit top line growth rate and keep margins and cash flows high. eBay has been able to achieve this target so far, with its operating margin up 328 basis points and free cash flow up 47% to $1.1 billion over the same period last year.
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In full year 2016, eBay expects its revenues to grow 3-4% y-o-y to $8.85-$8.95 billion, which implies a top line growth rate of 2.5% y-o-y in the latter half of the year. We expect the company to achieve this target driven by recent initiatives, namely – 1) structuring data into catalogs (for search engine optimization); 2) diversifying traffic sources; 3) enhancing seller experience; and 4) trimming down the asset portfolio. However, competition from retailing giants Amazon (NASDAQ:AMZN) and Walmart (NYSE:WMT) in the domestic market could limit eBay’s chances of beating its conservative sales growth target. (Also read: Is eBay Losing Its U.S. E-Commerce Footing To Walmart?)ebay-7 ebay-8

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