There's room for many e-commerce winners as the digital sales channel displaces more of the broader retailing industry. That includes selling platform eBay (NASDAQ:EBAY), which is engaged in an aggressive rebound initiative that's helped it remain one of the biggest online marketplaces around even against intense competition from the likes of Amazon and Walmart.

Investors have turned cautious on the stock lately, though, after a few speed bumps last quarter implied that its recovery efforts may take longer than Wall Street hoped. Updates on those challenges will likely be at the top of shareholders' minds when eBay's fiscal second-quarter report comes out on Wednesday, July 18.

Let's take a closer look.

The buyer numbers

eBay's fundamental growth metric is its pool of buyers. After all, robust gains there are essential to supporting its goal of attracting more sellers and pushing sales volumes higher.

A person holds a credit card while using his laptop.

Image source: Getty Images.

That's why it was notable that the platform's buyer growth dipped to its lowest level in over a year last quarter, with gains ticking down to 4% after sitting at 5% over the prior four quarters. A short-term dip like that is no reason to panic. In fact, management has warned investors to expect volatility as they make big tweaks to the platform aimed at improving the shopping experience. Still, it will be worth following this figure over the next few quarters to see whether eBay's growth pace bounces back up, holds steady, or keeps falling.


One of the big factors that separates eBay from the online arm of Walmart and Amazon is its focus on facilitating sales rather than marketing its own products. That approach translates into slower sales growth but higher profit margins. Whereas gross profit margin is a key factor in Walmart's earnings growth, eBay's profitability depends on its -- far higher -- transaction fees.

EBAY Operating Margin (TTM) Chart

EBAY Operating Margin (TTM) data by YCharts.

The fees dipped slightly last quarter, ticking down to 8.6% of sales from 8.7%. At the same time, operating expenses grew at a faster pace than sales as the company made aggressive investments into its product landing pages and its online marketing program. These factors combined to reduce overall profitability, with operating margin falling to 27.9% of sales from 28.9% a year ago. 

CEO Devin Wenig and his team have predicted that this general trend will continue over the short term, with margins falling slightly in 2018 compared to the prior year. But executives are hoping these moves amount to down payments toward faster profit growth. Investors will also be looking for signs that the spending is delivering results in the form of stronger sales volumes and higher transaction fees.

The 2018 outlook

As of late April, eBay's official outlook called for sales growth, excluding currency exchange shifts, to range between 6% and 8% in the traditionally slow second quarter, and between 7% and 9% in all of 2018. The midpoint of that annual guidance would match last year's 8% uptick, which was the company's fastest expansion rate in three years.  

We'll find out on Wednesday whether the company sees any reason to adjust that overall target. Even a modest increase would keep its streak of steadily accelerating sales growth on track. A downgrade, on the other hand, would point to expanding market share challenges given that the broader e-commerce industry is growing at a double-digit pace today.