eBay Earnings Preview: Steady Growth From Marketplaces Segment To Drive Earnings

January 29th, 2018 by Trefis Team
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eBay (NASDAQ:EBAY) is scheduled to report its fourth quarter results on Wednesday, January 31. In recent quarters, the company has reported steady mid-single digit revenue growth mainly driven by StubHub, the online ticketing business. However, StubHub revenues slowed down in Q2 and Q3 owing to a weaker event landscape and tough competition in the market. Consequently, much of the growth in the most recent quarter was attributable to a strong quarter for eBay’s marketplaces business

We have a $34 price estimate for eBay, which is more than 10% lower than the current market price. eBay’s stock price has fluctuated between $30 and $40 in the last year. We have created an interactive analysis where you can change expected revenue and income margin figures to gauge how it will impact expected EPS for the quarter.

See our complete analysis for eBay

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Q4 2017 and Full Year 2017 Guidance

In the December quarter, eBay expects 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. Similarly, eBay expects full year revenues to be around $9.5 billion and a non-GAAP diluted EPS of around $2.00, both in line with the Reuters’ consensus estimates.

Key Trends

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.

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 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.

Despite revenue growth in recent quarters, eBay has been grappling with falling operating margins. An increase in marketing and product development costs has led to some margin compression. eBay’s adjusted EBITDA margin has consistently fallen from almost 50% in 2012 to just over 38% in 2016. Similarly, eBay’s operating profit was also down 1% through the first three quarters, 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.

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