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eBay's (EBAY) Q4 Earnings and Revenues Surpass Estimates

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eBay Inc.’s (EBAY - Free Report) fourth-quarter 2018 earnings surpassed the Zacks Consensus Estimate by 16 cents. Adjusted earnings of 71 cents increased 20.3% year over year.

Gross revenues of $2.87 billion increased 6.3% year over year (up 6% on an Fx-neutral basis) and were within the guided range of $2.85-$2.89 billion. Moreover, revenues surpassed the Zacks Consensus Estimate of $2.86 billion.

The company continues to leverage its structured data and Artificial Intelligence (AI) to improve user experience on its platform. Notably, this aided in growth of active buyers on its platform, which drove GMV. Further, robust growth of Advertising and Payment platform drove eBay’s top-line growth.    

Revenues and GMV

In the fourth quarter, the Marketplace platform accounted for $2.3 billion of revenues, up 6.7% year over year on a reported basis and 6% on an Fx-neutral basis. Marketplace GMV was $23.2 billion, up 1.3% year over year on a reported basis and 3% on a Fx-neutral basis.

StubHub contributed $1.4 billion of GMV, down 1.4% on a year-over-year basis, and revenues of $314 million, which increased 1.6% from the year-ago quarter and 3% on Fx-neutral basis.

Classifieds platforms performed pretty well with contribution of $263 million in revenues, up 8% year over year and 11% on an Fx-neutral basis.

Total GMV was $24.7 million in the fourth quarter, up 1.2% year over year on a reported basis. Increase in total GMV was driven by international operations, which increased 5% year over year, while U.S. operations were down 1% year over year.

During the quarter, global active buyers/customers increased 4% from the year-ago quarter to 179 million, driven by increased marketing investments. Notably, growth in GMV was lower than growth in total active buyers.

In the reported quarter, eBay partnered with leading service providers, namely Handy, Porch and InstallerNet, to offer installation services to its shoppers. Further, the company expanded its eBay Authenticate platform into the luxury jewelry category, which offers jewelries verified by professional authenticators, in the reported quarter.

eBay Inc. Price, Consensus and EPS Surprise

eBay Inc. Price, Consensus and EPS Surprise | eBay Inc. Quote

Payments & Advertising Platform

eBay had 600,000 active sellers who promoted 200 million listings on the Marketplace advertising platform in the fourth quarter. This led to a contribution of $80 million to the company’s total revenues in the reported quarter.

Notably, the Payment platform was launched in third-quarter 2018. Since the platform’s launch, eBay has been able to benefit sellers by saving $1 million in payment related costs.

Margins and Income     

Gross margin in the quarter was 78.5%, up 30 basis points (bps) year over year.

Adjusted operating expenses of $1.6 billion increased 8.5% 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 29.2% in the fourth quarter, down 70 bps year over year.

Full-Year Details

eBay delivered revenues of $10.7 billion, growing 8% on a reported basis and 6% on a Fx-neutral basis in 2018. The increase in revenues was primarily driven by GMV of $95 billion, up 7% on a reported basis and 5% on a Fx-neutral basis.

For 2018, Marketplace and StubHub platform generated total GMV of $90 billion and $4.8 billion respectively, both increasing 5% year over year. Further, Marketplace, StubHub and Classifieds platform generated total revenues of $8.6 billion $1.1 billion and $1 billion, respectively.

For 2018, promoted listing revenues were $200 million.

Balance Sheet

eBay’s balance sheet is highly leveraged, with a long-term debt of $7.7 billion, which remained flat sequentially. Cash and short-term investments balance was $4.9 billion at the end of fourth quarter compared with $4.8 billion in the last reported quarter.

The company generated $1.2 billion in cash from operating activities and free cash flow of $1.1 billion compared with $560 million and $381 million, respectively, in the previous quarter. eBay repurchased shares worth $1.5 billion.

Further, the company generated operating cash flow and free cash flow of $2.7 billion and $2.0 billion, respectively, in 2018.

Share repurchases made by the company totaled $4.5 billion. The company's total repurchase authorization remaining as of Dec 31, 2018 was $3.2 billion.

Guidance

For the first quarter of 2019, eBay expects revenues to grow 0%-2% on a Fx-neutral basis to $2.55-$2.60 billion. The Zacks Consensus Estimate for fourth-quarter revenues is pegged at $2.66 billion.

Non-GAAP earnings are expected within 62-64 cents per share and the Zacks Consensus Estimate for the same is pegged at 61 cents.

eBay expects 2019 revenues between $10.7 billion and $10.9 billion, indicating growth of 1-3% on a Fx-neutral basis. StubHub is expected to stay flat while Classified platform is anticipated to witness double-digit growth.

The company expects to increase investments in its Advertising and Payments platform. Further, eBay continues to pursue cross merchandising strategy between StubHub and eBay and plans to accelerate its strategy in 2019.

Moreover, eBay will be reducing its marketing spend in 2019, which is expected to keep GMV under pressure in the near term.

Further, operating margin is expected to stay in the range of 28% and 29% for 2019.

Adjusted earnings are expected between $2.62 and $2.68 per share.

The company expects to return $5.5 billion to shareholders in 2019 through share repurchases and dividends.

Zacks Rank & Other Stocks to Consider

eBay currently carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the broader computer and technology sector include Xilinx, Inc. (XLNX - Free Report) , Twitter, Inc. (TWTR - Free Report) and Cloudera, Inc. (CLDR - Free Report) . All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

Expected long-term earnings growth rate for Xilinx, Twitter and Cloudera is 12%, 22.1% and 15%, respectively.

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