eBay Beats on Top & Bottom Lines

After the bell today, eBay, Inc. (EBAY - Analyst Report) reported better-than-expected results for the first quarter, beating on the top and bottom lines. The company reported net revenue of $2.02 billion, well above our estimate of $1.945 billion and consensus of $1.94 billion, but in line with management guidance of $1.850-$2.050.

eBay also had GAAP earnings per share of $0.28, above our estimate of $0.21 and management’s guidance of $0.21-$0.23. Its pro forma EPS, which excludes non-cash expenses, was $0.39, above our estimate of $0.33 and management’s guidance of $0.32-$0.34.

Driving the upside was PayPal, which generated revenue of $643 million, above our estimate of $593 million. That offset a year-over-year decline of 18% in eBay’s core auction business. eBay also had lower-than-expected tax rate of 19% compared to 20.7% in the year-ago quarter.

eBay shares are spiking higher on its first quarter results. Despite the company’s first quarter upside, it is difficult to get excited about EBAY shares. Sales declined 8% year-over-year and pro forma operating income declined 11%. Its core auction business is no longer a growth business. Meanwhile, its fastest growing business, PayPal, increased sales by 10% in the first quarter, but that business generates lower profit margin than the auction business.

As a result, eBay’s future growth will resemble a mature company, much slower than other tech companies. That said, it is also difficult to get negative on eBay because it still throws off a substantial amount of free cash flow ($578 million in the first quarter) and has $3.1 billion in cash on its balance sheet. EBAY remains Hold-rated stock.