It has been about a month since the last earnings report for eBay (EBAY - Free Report) . Shares have added about 2.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is eBay due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
eBay Surpasses Earnings and Revenue Estimates in Q3
eBay Inc.’s third-quarter 2018 earnings surpassed the Zacks Consensus Estimate by a penny. Pro-forma earnings of 56 cents improved 16.7% year over year.
Gross revenues of $2.65 billion increased 6% year over year (up 6% on an Fx-neutral basis) and were within the guided range of $2.64-$2.69 billion. Moreover, revenues surpassed the Zacks Consensus Estimate by 0.12%.
On the call, management sounded impressed with the progress of the company’s transformation and positive response of customers toward the same. eBay plans to invest more in payments and advertising, going forward. Last month, the company rolled out its new payments experience in the United States and has already begun to accept Apple Pay.
During the quarter, eBay completed the sale of its equity investment in Flipkart. In addition, the company announced its intent to acquire Motors.co.uk.
Revenues and GMV
In the third quarter, the Marketplace platform accounted for$2.1 billion of revenues, up 6% year over year on a reported basis and 5% on an FX-Neutral basis. Marketplace GMV was $21.5 billion, up5% year over year on a reported basis as well as an FX-Neutral basis. The increase was aided by continual expansion of new user experiences.
StubHub contributed $1.2 billion of GMV, up 7% on a year-over-year basis, and revenues of $291 million, which increased 7% from the year-ago quarter.
Classifieds platforms performed pretty well with contribution of $254 million in revenues, up 8% year over year and 11% on a FX-Neutral basis.
Total GMV of $22.7 million in the third quarter grew 5% year over year on a reported basis.
During the quarter, global active buyers/customers increased 4% from the year-ago quarter to 177 million.
Margins and Income
Pro-forma gross margin in the quarter was 77%, down 70 basis points (bps) year over year.
Adjusted operating expenses of $1.4 billion increased 9.2% from the prior-year quarter. As a percentage of sales, sales and marketing expenses increased, while product development and general & administrative expenses decreased.
Non-GAAP operating margin decreased to 26.4% in the third quarter, down 200 bpsyear over year.
Balance Sheet and Cash Flow
eBay’s balance sheet is highly leveraged, with a long-term debt of $7.7 billion. Cash and short-term investments balance was $4.8 billion at the end of third quarter versus $4 billion in the last reported quarter.
eBay generated $560 million in cash from operating activities and spent $179 million on capex. Free cash flow during the quarter was $381 million and the company repurchased shares worth $1 billion.
For the fourth quarter of 2018, eBay expects revenues to grow 4-5% on an Fx-neutral basis to $2.85-$2.89 billion. Non-GAAP earnings are expected within 69-69 cents. GAAP earnings per share from continuing operations are expected in the range of 87-92 cents.
eBay decreased its full-year revenue guidance for 2018. The company now expects full-year revenues between $10.72 billion and $10.76 billion versus previous guided range of $10.75-$10.85 billion.
Adjusted earnings per share are expected between $2.29 and $2.31 versus prior guided range of$2.28-$2.32.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, eBay has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
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.