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What Happened in the Stock Market Today

By Jim Crumly - Feb 1, 2018 at 5:11PM

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On a roller-coaster day for the broader indexes, eBay investors cheered its strong guidance, but Alibaba shares fell after the company reported lower-than-expected earnings.

Stocks seesawed today, and the Dow Jones Industrial Average (^DJI -0.82%) and the S&P 500 (^GSPC -0.88%) ultimately finished on either side of the unchanged mark.

Today's stock market

Index Percentage Change Point Change
Dow 0.14% 37.32
S&P 500 (0.06%) (1.83)

Data source: Yahoo! Finance.

As for individual stocks, strong 2018 guidance sent eBay (EBAY -2.34%) shares surging, while Alibaba's (BABA -2.02%) earnings disappointed investors.

Digital screen showing percentage gains and losses of tickers with arrows superimposed on top

Image source: Getty Images.

eBay jumps on strong outlook

Shares of eBay soared 13.8% after the company reported fourth-quarter results that were roughly in line with expectations, but gave an outlook for 2018 that was more optimistic than Wall Street's. Revenue was up 9.1% to $2.61 billion on a 10% increase in gross merchandise volume. Net income, not counting a $3.1 billion one-time charge due to the new tax bill, increased 2.8%, but adjusted earnings per share increased 9.3%, due to eBay's aggressive share buyback program that cut the weighted average number of shares outstanding by 7% from 2016 to 2017. Active buyers grew by 5% to 170 million.

eBay's guidance is for Q1 revenue between $2.57 billion and $2.61 billion, above analysts' expectation of $2.41 billion, and for full-year revenue of between $10.9 billion and $11.1 billion, compared with expectations of $10.3 billion. Full-year adjusted EPS guidance is for a range of $2.25 to $2.30, while analysts had been thinking $2.23. The board also authorized another $6 billion in share repurchases.

When PayPal split off from eBay in 2015, many observers focused on that company as being the growth vehicle and didn't hold eBay's marketplace business in high regard, worrying about online competition. PayPal certainly hasn't been a disappointment to investors, but, then, neither has eBay. To the surprise of some, the company continues to grow its volume as it generates huge amounts of cash -- $3.1 billion of operating cash flow on revenue of $9.6 billion in 2017 -- which it is returning to investors in the form of huge share buybacks.

Alibaba beats on top line, takes stake in fintech Ant Financial

Alibaba, China's largest e-commerce company, beat Wall Street expectations for revenue but missed on the bottom line when it reported holiday quarter results. The company also announced it is acquiring a 33% stake in privately held Ant Financial Services Group. The market was unimpressed by the news and the stock closed down 5.9%.

Revenue grew a whopping 56% to $12.76 billion when analysts were expecting $12.68 billion. Non-GAAP earnings per share were $1.63 compared with expectations of $1.67. The company's biggest segment, core commerce, increased sales 57%, while digital media and entertainment grew 33% and cloud computing soared 104%. 

The bigger news was arguably the announcement of the equity stake in Chinese fintech Ant Financial, a company that was originally spun out of Alibaba when the latter went public, and which runs the Alipay online payment platform. The previous arrangement had been a profit-sharing agreement, where Ant paid 37.5% of its pre-tax profit to Alibaba as "royalty and technology service fees." The new arrangement terminates that payment in return for the equity stake in Ant, which is probably a sign that Ant is preparing for an IPO.

The new arrangement with Ant is undoubtedly a good deal for Alibaba and its investors. Royalty payments from Ant amounted to only $30 million last quarter, as the fintech company is still investing heavily for growth. The equity stake could easily be worth tens of billions the first day of Ant's IPO, a possibility that investors seemed to overlook today.

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Stocks Mentioned

eBay Inc. Stock Quote
eBay Inc.
$41.67 (-2.34%) $-1.00
Alibaba Group Holding Limited Stock Quote
Alibaba Group Holding Limited
$113.68 (-2.02%) $-2.35
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$30,775.43 (-0.82%) $-253.88
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
$3,785.38 (-0.88%) $-33.45

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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