This has been a good year for e-commerce marketplace eBay (EBAY 2.93%). Its shareholders spent nearly all of 2017 enjoying significant gains over the broader market. And the stock is outpacing the S&P 500 by a healthy margin with just a few trading days left in the year.
There were some operating stumbles, especially on the StubHub ticketing segment. Some of the company's biggest rivals are also growing at a much faster pace. However, several big things went right this year that all served to help eBay deliver on the ambitious goals that management set at the start of 2017.
Keeping its promises
In late January, following a solid 2016 holiday season that kept eBay firmly in second place among all e-commerce shopping destinations, CEO Devin Wenig and his executive team issued an aggressive challenge for 2017. "We intend to accelerate the progress that we made last year as we continue to execute our business strategy," he said in a press release. Management's growth plan relied on making improvements to the customer shopping experience so that eBay's sales would accelerate from 2016's 7% pace.
The year hasn't closed yet, but the company is likely to have achieved that goal. Its third-quarter results were highlighted by a 7% spike in volume, which is the fastest expansion pace that eBay has seen in more than three years. Meanwhile, the pool of active buyers rose by 5% in each of the first three quarters of the year despite sluggish results at the StubHub segment. As a result, eBay is poised to modestly beat the 2017 revenue goal that Wenig and his team set at the start of the year.
Financially, shareholders have plenty to celebrate about eBay's latest trends. Their company generated $720 million of free cash flow last quarter, which translates to a whopping 30% of revenue and is a testament to an asset-light business model that just seeks to pair buyers with sellers without investing heavily in an integrated shipping and fulfillment network.
That model also produced $1.59 billion of net income from just $7 billion of sales over the past nine months, putting eBay's 23% profit margin far ahead of either Amazon.com (AMZN 3.15%) or Wal-Mart (WMT 0.86%), whose margins are both in the low single digits.
Room for improvement
Of course, eBay's growth results look less impressive when stacked up directly against these industry peers. Amazon's product sales spiked by 29% in the third quarter, and Wal-Mart's merchandise volume, while starting from a smaller base, was up 54%. These numbers show that eBay is likely shedding market share even at its accelerating growth pace. They also help explain why the stock underperformed Amazon's and Wal-Mart's by a wide margin this year.
Still, shareholders can be pleased that their company edged past the broader market in 2017 while producing tons of excess cash and profits in the process.
The marketplace's expansion rate is sitting far below that of e-commerce giants like Amazon. But it is accelerating just as management predicted, thanks to improvements in the shopping process and a growing pool of buyers. Another good holiday quarter would allow the company to cement those wins and enter 2018 with plenty of positive momentum with regard to both its finances and its operating results.