eBay - Q2 2001

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By jayseae
July 26, 2001

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Greetings, denizens of the EBAY board. Sorry I'm late on this one. Had to go out of town over the weekend, didn't get a chance to get the spreadsheets updated. Didn't look like anyone had posted an analysis of what we found out last week, so here's my shot at it.

Income Statement
Didn't anyone tell EBAY that there's a recession trying to get started? Geez. Someone ought to because they sure don't seem to get it. Revenues up. Not sure about the numbers in their release - they cite $147.4M in revenues for last quarter, I get $154.1M - I even double-checked the 10Q. Either way, it's a good increase - between 15% and 17%. Costs in the most recent quarter grew slightly faster than revenue, meaning that gross margin ticked down to a pathetic 81.8%. :)

R&D and Sales & Marketing expenses grew consistently, but dropped as a percentage of revenues. This allowed operating margin to stay nearly the same, at 19.6% (had been 19.9%).

Shares outstanding grew by a bit, and the Market Cap/NOPAT ratio jumped above 100 again. Note: The MC/N ratio is taken at the end of the quarter, when the share price was above $68 - now that the price has dipped back to $64, MC/N stands at about 97. This is only significant because it's the highest it's been in 7 quarters - back to September of 1999. Nowhere near the 588.31 seen just one year ago, but still higher than many. Important if you watch that sort of thing.

Balance Sheet
Cash grew significantly, AR went up a bit faster than sales (DSO at 51.6 days, from 44.1 days), Inventories aren't bad, and Payables made tremendous growth (DPO exploded from 71.3 days to 109.8 days). This all turns in a Cash Conversion Cycle of a monstrous <-58.2> days, meaning that EBAY has use of the money for nearly two months before it has to be spent again. Very impressive.

Cash-to-debt is well above 3 and the Flowie comes in at 1.02.

Cash Flow
Well, like everyone else in the world, EBAY doesn't release cash flow figures with their announcement. So we'll take a look at last quarter instead.

Free Cash Flow was negative, at <-$18.5M>, while TTM FCF rang in at $11.1M. Not only is EBAY investing in their growth (about $50M in capex over the last year), but they've got a lot of excess money showing on their cash flow sheet. Nearly $40M in non-operating gains, such as tax benefits from options exercised. Needless to say, I take those out. If for some reason you don't, then EBAY is doing okay - with about $50M in TTM FCF. This compares pretty nicely with a $53.5M TTM NOPAT number. But makes you wonder why they need those tax benefits to make any money. Just something to watch.

All in all, EBAY turned in another solid quarter. Very impressive stuff. This was the 7th straight quarter of double-digit revenue growth. And for those who asked, a 15% sequential growth rate from here would give us about $2.2B in TTM revenues for year end 2005 (18 quarters away). I think I did that right. If I did, then we really need to see 20.3% sequential growth each quarter to hit the target (actually this would be $5.037B). If this rate continues, it looks like EBAY will end up quite a bit short.

Disclosure: I currently hold no position in EBAY.