eBay's Solid Quarter Leaves the Market Underwhelmed

eBay Inc. (EBAY 1.32%) announced solid first-quarter 2018 results late Wednesday, punctuated by steady growth in active buyers and gross merchandise volume.

But shares of the online marketplace platform provider dropped after it merely reiterated its full-year guidance. So let's take a closer look at how eBay kicked off the new year, and what investors can expect from the company moving forward.

IMAGE SOURCE: EBAY.

eBay results: The raw numbers

DATA SOURCE: EBAY. GAAP = Generally accepted accounting principles.

What happened with eBay this quarter?

• Revenue climbed 7% on a constant-currency basis.
• On an adjusted (non-GAAP) basis -- which excludes significant tax-related items in both this quarter and the same year-ago period -- net income from continuing operations increased to $548 million, or $0.53 per diluted share, compared to $538 million, or $0.49 per share in last year's first quarter.
• By comparison, these results were roughly in line with eBay's latest guidance, which investors celebrated last quarter, which called for revenue of between $2.57 billion and $2.61 billion, and adjusted earnings per share of $0.52 to $0.54.
• Active buyers across all platforms grew 4% year over year to 171 million, up from 170 million last quarter.
• Marketplace gross merchandise volume (GMV) increased 13% (7% at constant currency) to $22.5 billion, driven by expansion of new user experiences. Marketplace revenue increased 11% (or 7% at constant currency) to $2.1 billion.
• StubHub revenue climbed 9% year over year to $232 million, led by record Super Bowl ticket sales and international growth.
• Classifieds revenue grew 24% (10% at constant currency) to $246 million, led by continued growth in Germany.
• Generated operating cash flow was $495 million, and free cash flow from continuing operations was $337 million.
• Repurchased 24 million shares for roughly $1 billion during the  quarter, leaving $6.6 billion remaining under eBay's current repurchase authorization.
• Announced an agreement to acquire Giosis' Japan business, including its Qoo10.jp platform. The move will significantly expand eBay's presence in the country and should close in the second quarter of 2018.

What management had to say

"In Q1 we drove good growth and made further progress with our multiyear effort to transform our customer experience and sharpen the eBay brand," stated eBay CEO Devin Wenig.

During the subsequent conference call, Wenig noted that eBay shifted its focus this quarter to improve the quality of organic traffic, including a redesigned commerce experience that sends a subset of buyers in the U.S. directly to product-based search results. 

"This is an important first step toward moving a material amount of our GMV to product-driven experiences over time," Wenig added. "[...] We believe this will simplify eBay's search as well as better highlight our natural inventory and price advantages."

In addition, Wenig says, eBay is working on expanding its newer inventory authentication and Guaranteed Delivery services while simultaneously implementing more efficient intermediated payments options.

Looking ahead

For the second quarter of 2018, eBay expects revenue between $2.64 billion and $2.68 billion, good for steady currency-neutral growth of 6% to 8%. That should translate to adjusted earnings per diluted share of $0.50 to $0.52. By comparison -- and while we don't usually pay close attention to Wall Street's demands -- the midpoints of both ranges were below expectations, which had called for adjusted earnings of $0.52 per share on revenue of $2.69 billion.

Finally, eBay reaffirmed its full-year guidance calling for 2018 revenue between $10.9 billion and $11.1 billion, and for 2018 adjusted earnings per share of $2.25 to $2.30. By comparison, investors were hoping for earnings of $2.29 per share -- near the high end of eBay's anticipated range -- on revenue right at the midpoint of guidance.

So contrary to what today's nearly 6% pullback might indicate, this wasn't a terrible quarter from eBay. But with shares up more than 24% over the past year leading into this report -- a move aided by last quarter's stellar showing and better-than-expected outlook -- it's no surprise to see the stock falling in response.