eBay, Inc.'s Light Earnings Guidance Overshadows a Strong Quarter

eBay Inc. (EBAY 0.10%) announced better-than-expected third-quarter 2017 results on Wednesday after the market closed, highlighting the continued revenue acceleration for its core marketplace platforms and its fastest gross merchandise volume growth since 2014.

But thanks to mixed forward guidance -- at least relative to Wall Street's expectations -- shares are down around 6% in after-hours trading as of this writing. Let's take a closer look, then, at how eBay kicked off the second half of the year, and what investors can expect from the e-commerce giant.

Image source: eBay.

eBay results: The raw numbers

Data source: eBay. 

What happened with eBay this quarter?

• Both the top and bottom lines compared favorably with eBay's latest guidance -- provided with its second-quarter report in July -- which called for adjusted earnings per share of $0.46 to $0.48 on revenue of $2.35 billion to $2.39 billion.
• Revenue climbed 8% at constant currency.
• eBay added nearly 2 million active buyers across its platforms, bringing its total to roughly 168 million. This figure excludes active buyers in India following the completion of the sale of eBay's India business to Flipkart during the quarter.
• Marketplace gross merchandise volume (GMV) increased 9% as reported, and 7% at constant currency to $20.5 billion, thanks to accelerations in the U.S. and Europe. That translated to revenue of $1.9 billion, up 8% as reported and 7% at constant currency.
• StubHub GMV grew 2% year over year to $1.2 billion, resulting in a 5% increase in revenue to $275 million thanks to international growth.
• Classifieds revenue grew 19% (13% at constant currency) to $235 million, driven by growth in Germany.
• eBay epurchased 25 million shares during the quarter for $907 million, leaving $2.6 billion remaining under the existing repurchase authorization.
• Quarterly operating cash flow was $877 million, and free cash flow was $720 million. eBay ended the quarter with cash, cash equivalents, and non-equity investments of $11.4 billion.

What management had to say

"In Q3, we drove acceleration across all three of our platforms, delivering strong top- and bottom-line financial results and our fastest volume growth in over three years," stated eBay CEO Devin Wenig. "Our customers are responding to the significant product enhancements we have been making, and this is reflected in our results."

Looking ahead

For the fourth quarter, eBay expects revenue between $2.58 billion and $2.62 billion, for currency-neutral growth of 6% to 8%. Based on generally accepted accounting principles (GAAP), that should result in earnings per diluted share from continuing operations of $0.40 to $0.45, and adjusted (non-GAAP) earnings per share of $0.57 to $0.59. By comparison, Wall Street was modeling fourth-quarter adjusted earnings near the high end of eBay's outlook, but on revenue at the low end of its guidance range.

For context, during the subsequent conference call eBay management elaborated that expected accelerations in both overall marketplace GMV and revenue will be offset, however slightly, by a combination of headwinds at StubHub and the timing and length of the South Korean Thanksgiving holiday.

eBay now expects full-year revenue of between $9.53 billion and $9.57 billion, up from its previous range of $9.3 billion to $9.5 billion, with adjusted earnings per share of $1.99 to $2.01, narrowed from its previous range of $1.98 to $2.03.

All things considered, these ranges don't represent truly significant changes from investors' prior expectations for eBay. If anything, it's encouraging to see consumers still flocking to eBay's platforms and continuing to drive healthy GMV acceleration -- a sentiment echoed by the positive tone of Wenig's comments on the quarter. But it wasn't technically perfect. So with shares already up nearly 28% year to date as of Wednesday's close, it's apparent that the market wanted more.