eBay Earnings Preview: Steady Revenue Growth To Be Offset By Margin Pressure

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eBay (NASDAQ:EBAY) is scheduled to announce its first quarter results on Wednesday, April 25. The company reported a 7% increase in net revenue to $9.6 billion through 2017. Growth came from both the transaction and marketing services businesses. In the latter half of the year, eBay’s classifieds business was the highest growing segment, with a 20% y-o-y increase in revenues. The other positive for eBay was StubHub revenues picking up in Q4 after a slowdown in Q2 and Q3 owing to a weaker event landscape.

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 margin compressed by almost 250 basis points to just under 36% in 2017. Correspondingly, net income was down 1% but share repurchases through the year helped drive EPS.

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Going forward, we expect both segments to sustain high single digit growth for the March quarter. In addition, we expect margins to continue to compress through the year due to increase in marketing and promotion expenses. We have created an interactive analysis, in which we have summarized our expectations for Q1’18. You can change expected segment revenue and margin figures for eBay to gauge how it will impact expected EPS for the March quarter.

See our complete analysis for eBay

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