eBay’s Stock Gains As Q4 Earnings Beat Market Expectations

eBay (NASDAQ:EBAY) released its Q4 2016 results recently and they were in line with market expectations. The company’s revenue grew 3% year over year to $2.4 billion during the quarter driven by consistent low single digit growth in both the marketplace and advertising businesses. The company’s adjusted earnings of $0.54 per share were up 8% year over year, just beating analyst consensus estimates of $0.53.

Top line growth was driven by an 18% increase in StubHub sales and a 3% increase in Marketing & Advertising revenue over the prior year quarter. This was the fourth consecutive quarter of sales growth for eBay and was driven by:  1) structuring data into catalogs (for search engine optimization); 2) diversifying traffic sources; 3) enhancing the seller experience; and, 4) trimming down the asset portfolio. However, this increase was offset by a 9% increase in cost of revenues, which led to a 4% decline in operating income to $638 million in the quarter. Another cause for concern was the decline in free cash flows due to declining cash flows from operations. eBay repurchased $1 billion worth of its own shares in the quarter, bringing last year’s total to $3 billion. The company stated that it plans to buyback about $1 billion worth of its shares this year. Owing to the company’s market beat and in-line guidance, eBay’s stock rose 9% in after-hours trading on Wednesday and is currently about 5% above its pre-earnings price. In the first quarter this year, the company expects revenue between $2.17 billion and $2.21 billion, against consensus estimates of $2.20 billion. It also expects non-GAAP EPS of $0.46 to $0.48 per share, against consensus estimates of $0.50.

Average Spend Per Users Declining

Although the number of active users continue to rise for eBay, the average spend per user declined in 2016. Compared to an average spend per user of around $129 per quarter in 2015, the figure was $127 per user per quarter in 2016. The consistent decline in every quarter of 2016 is a cause for concern for eBay, especially considering rising competition in e-commerce from Amazon, Walmart, Target and even Groupon. eBay managment stated that it intended to ramp up TV advertisements to attract more millenials and work towards improving product search features on its website for buyers. 
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