Image source: eBay, Inc.
What happened
Shares of eBay Inc. (EBAY 1.97%) were down 11% as of 1 p.m. EDT after the online marketplace reported stronger-than-expected third-quarter 2016 results but followed with underwhelming forward guidance.
So what
Quarterly revenue climbed 6% year over year (8% on a constant currency basis), to $2.22 billion. Gross merchandise volume (GMV) rose 3% year over year (5% at constant currency), to $20.1 billion, including a 2% increase in marketplaces GMV, to $19.0 billion (which generated revenue of $1.8 billion), and 23% growth in StubHub GMV, to $1.1 billion (resulting in revenue of $263 million). eBay also added 1 million active buyers across its platforms, bringing its total number of active buyers to 165 million.
On the bottom line, that translated to adjusted net income from continuing operations of $509 million, or $0.45 per diluted share, the latter of which was bolstered by eBay repurchasing $500 million in shares during the quarter.
Curiously -- and contrary to what the market's reaction might indicate -- eBay's guidance had called for lower revenue of $2.16 billion to $2.19 billion, and lower adjusted earnings per share of $0.42 to $0.44. And analysts, on average, were looking for revenue and earnings near the high end of eBay's guidance ranges.
Now what
For the current quarter, however, eBay expects revenue of $2.36 billion to $2.41 billion, and adjusted earnings per share in the range of $0.52 to $0.54. Analysts' consensus estimates called for revenue and earnings at the high end of those respective ranges.
As a result, eBay now expects revenue of $8.95 billion to $9.0 billion for the full year (an increase from its previous guidance range of $8.85 billion to $8.95 billion), but management merely reiterated its previous outlook for 2016 adjusted earnings per share of $1.85 to $1.90. Here again, Wall Street predicted earnings near the high end of that range on revenue of $8.95 billion.
It is possible that eBay might be underpromising with the intention of overdelivering. Notably, during the subsequent conference call, management elaborated that eBay's margin contraction was primarily due to a combination of the impact of the strong dollar and a higher mix of faster-growth platforms like StubHub, which inherently commands lower gross margin than eBay's core marketplaces platform.
In the end, this was a solid quarter that doesn't invalidate eBay's long-term story. And I think today's tumble could be a great buying opportunity for investors willing to take advantage of the plunge and hold while that story plays out.
