An Overview Of eBay’s Performance This Year

eBay (NASDAQ:EBAY) has reported somewhat mixed results this year, with mild revenue growth and a fall in margins. Revenue growth from its fastest-growing segment, StubHub, slowed down during the year, while gross margins and operating margins compressed through the year. On a positive note, the company reported healthy growth in its marketplace business as well as from classifieds. Net revenue was up 6% for the first three quarters of the year to just under $7 billion.

Comparatively, gross profit (GAAP) was up by only around 4% on a year-over-year basis to $5.3 billion, due to which the gross profit margin was down 120 basis points to 76.5%. Gross margins were especially lower in the first half of the year, but picked up in Q3 due to strength in classifieds and marketplaces segments. Similarly, eBay’s operating profit was also down 1% on a y-o-y basis, due to which its operating margin compressed by almost 2 percentage points to just under 29%. Correspondingly, net income was down 1% but share repurchases through the year helped drive earnings per share by 5% to $1.42, as shown below.

Performance By Segment

The company’s net transaction revenue was up 5% year-over-year to $5.4 billion, of which both StubHub and the core marketplaces segment grew in mid single digits. Marketplace revenue increased by around 5% y-o-y to $4.7 billion. Through the year, the total marketplace gross merchandise volume (GMV) has risen by 5% to almost $61 billion. Similarly, the aggregate buyer base at the end of Q3 was up 5% from previous year levels to 168 million active buyers. We forecast eBay’s transaction revenues to continue to increase consistently in the mid single digits through the end of our forecast period.

On the other hand, StubHub revenue was up by around 6% over the prior year period at $704 million. This has been the fastest growing revenue stream for the company in recent years, with double digit revenue growth in eight quarters from early 2015 to the March quarter this year. However, eBay reported lower bookings in the June and September quarters this year, which it attributed to a weaker event landscape and tough competition in the market. Although sales improved slightly in Q3 this year due to early season strength from NHL bookings, the company expects the pressure to continue in the coming quarters. The total GMV for StubHub this year was up only 1% y-o-y to $3.1 billion.

Comparatively, marketing and advertising revenue was up 8% over the prior year period to $1.5 billion. Within marketing and advertising, the Classifieds business has shown strength, with a 13% growth in revenue to $670 million, as shown above. Growth picked up in Q3 after a slow start to the year for Classifieds. A key reason for growth in Q3 was eBay’s motors.de segment in Germany. This segment has been growing rapidly, with eBay reporting double digit growth in the Classifieds segment through most of 2016 and 2015.

December Quarter To Sustain Growth

eBay expects Q4 net revenues of $2.6 billion, representing 8-10% annual growth. It also expects non-GAAP EPS of $0.57 to $0.59 per share, which is in line with consensus estimates. Accordingly, full year revenues are likely to be just over $9.5 billion and a non-GAAP diluted EPS of around $2.00, both in line with consensus estimates.

We maintain our $34 price estimate for eBay, which is around 10% lower than the current market price. You can modify the interactive charts in this article to gauge how changes in individual drivers for eBay can have on our price estimate for the company.

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