It has been about a month since the last earnings report for eBay Inc. (EBAY - Free Report) . Shares have lost about 7.2% in that time frame.
Will the recent negative trend continue leading up to its next earnings release, or is EBAY due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
eBay Q1 Earnings Match Estimates, Revenues Misses
eBay Inc. first-quarter 2018 earnings matched the Zacks Consensus Estimate, while the revenues missed the same by a slight margin. Pro forma earnings of 53 cents improved 9% year over year.
Gross revenues of $2.58 billion were up 12% on a year-over-year basis (up 7% on an Fx-neutral basis) and within the guided range of $2.57-$2.61 billion. Revenues were below the Zacks consensus estimate of $2.598 billion.
Shares gained 4.3% in after-hours trading in response to the company’s weaker-than-expected revenue growth. Also, in the past 12-months, the stock has gained 19.1% underperforming its industry’s growth of 42.4%.
On the call, management sounded impressed with the progress of the company’s transformation and the positive response of customers to it. eBay is leveraging on its structured data and Artificial Intelligence (AI) strength to build product catalogs, enhance mobile platform, roll out new browse-inspired shopping journeys, enhance customer-to-customer (C2C) business and strengthen its brand.
It accelerated its AI efforts through structured data, personalization, image search technology, and customer support initiatives in several areas.
During the quarter, eBay announced that it will acquire Giosis' Japan business, including the Qoo10.jp platform. The deal which is expected to close in the second quarter of 2018, will likely expand eBay's footprint in Japan.
Overall, we remain positive about eBay’s replatforming and brand enhancement initiatives. Its unique capabilities backed by technological improvements give it an edge over competitors such as Etsy (ETSY), Alibaba (BABA) and Facebook (FB).
Revenues and GMV
In the first quarter, the Marketplace platform contributed $22.5 billion of gross merchandise volume (GMV) and $2.1 billion of revenues. Marketplace GMV grew 13% year over year on a reported basis and 7% on an FX-Neutral basis. The increase was aided by continued expansion of new user experiences.
StubHub contributed $1 billion of GMV, up 14% on a year-over-year basis, and revenues of $232 million, up 9% year over year. The increase was driven by a robust sports landscape, including a record Super Bowl, and strong international growth.
Classifieds platforms also performed well with contribution of $246 million of revenues, up 24% both on a year-over-year and 10% on a FX-Neutral basis, driven primarily by strength in Germany.
Total GMV of $23.6 million in the first quarter grew 13% year over year on a reported.
During the quarter, global active buyers/customers increased 4% from the year-ago quarter to 171 million.
Margins and Income
Pro forma gross margin for the quarter was 78.3%, up 60 basis points (bps) year over year.
Adjusted operating expenses of $1.36 billion increased 16.1% from the prior-year quarter. Pro-forma operating margin was 27.9%, down 100 bps year over year. The decrease was due to increased investments in sales and marketing and product development.
GAAP net income was $5.4 billion compared with $5.6 million in the year-ago quarter.
Balance Sheet and Cash Flow
eBay’s balance sheet is highly leveraged, with long term debt of $9.2 billion. Cash and short-term investments balance were $4.8 billion at the end of first quarter versus $5.9 billion in the prior quarter.
eBay generated $495 million in cash from operating activities and spent $158 million on capex. Free cash flow during the quarter was $337 million and the company repurchased shares worth $1 billion.
For the second quarter of 2018, eBay expects revenues to grow 6-8% on an Fx-neutral basis to $2.64-$2.68 billion, better than the Zacks Consensus Estimate of $2.68 billion. Non-GAAP earnings are expected within 50-52 cents and the Zacks Consensus Estimate is pegged at 52 cents. GAAP earnings per share from continuing operations are expected in the range of 33-37 cents.
eBay maintained its full-year guidance. The company expects full-year revenues between $10.9 billion and $11.1 billion. The Zacks Consensus Estimate is pegged at $11.02. Adjusted earnings per share are expected between $2.25 and $2.30. The Zacks Consensus Estimate is pegged at $2.29.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There have been two revisions higher for the current quarter compared to five lower.
eBay Inc. Price and Consensus
At this time, EBAY has an average Growth Score of C, though it is lagging a bit on the momentum front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for growth based on our styles scores.
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, EBAY has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.