eBay Drops After a Soft Quarter, Lowered Guidance

eBay Inc. (EBAY 0.40%) announced mixed second-quarter 2018 results on Wednesday after the market closed, detailing lighter-than-expected revenue growth and solid profitability as the online marketplace works to expand its reach. But eBay also offered light guidance for the current quarter and reduced its full-year revenue outlook.

Let's dig deeper to better understand what eBay accomplished over the past few months, and what investors should be watching as we look ahead.

Image source: eBay.

eBay results: The raw numbers

Data source: eBay. GAAP = Generally accepted accounting principles. 

What happened with eBay this quarter?

• Excluding unusual/one-time items, eBay's (non-GAAP) net income from continuing operations increased to $533 million, or $0.53 per share, up from $495 million, or $0.45 per share in the same year-ago period.
• Revenue increased 6% year over year on a constant-currency basis.
• The top line arrived at the low end of guidance provided last quarter, which called for a range of $2.64 billion and $2.68 billion. But adjusted earnings arrived above the high end of eBay's outlook for a range of $0.50 to $0.52 per share.
• Active buyers increased 4% year over year across all global platforms to 175 million, up from 171 million last quarter.
• Gross merchandise volume (GMV) grew 10% (7% at constant currency) to $23.6 billion.
• Marketplace revenue grew 9.4% (6% at constant currency) to $1.837 billion.
• StubHub revenue climbed 4% to $246 million, on a 5% increase in GMV to $1.1 billion.
• Classifieds revenue grew 18% (10% at constant currency) to $259 million.
• eBay generated operating cash flow from continuing operations of $372 million, and free cash flow of $188 million.
• The company repurchased 26 million shares for $1 billion during the quarter, leaving $5.7 billion remaining under eBay's current buyback authorization.
• eBay announced its intent to sell its stake in Flipkart for gross proceeds of $1.1 billion, after which it will end its strategic relationship with the Indian e-commerce store. eBay will then relaunch eBay India with a differentiated offer and an initial focus on cross-border trade.
• The company completed the previously announced acquisition of Giosis' Japan business, including the Qoo10.jp platform, expanding eBay's footprint in the country.

What management had to say

Ebay CEO Devin Wenig stated:

In Q2 we continued to execute our strategy, making improvements to the core eBay experience. At the same time, we pursued significant opportunities in advertising and payments. As we look ahead to the second half of 2018, we expect acceleration in our core business and continued strong growth in earnings.

Looking ahead

But eBay's outlook wasn't quite so optimistic from investors' points of view. For the third quarter of 2018, eBay anticipates revenue between $2.64 billion and $2.69 billion, for organic currency-neutral growth of 5% to 7%. On the bottom line, that should result in adjusted earnings from continuing operations in the range of $0.54 to $0.56 per share. By comparison -- and though we don't usually lend much credence to Wall Street's demands -- most investors were looking for earnings near the high end of that range on revenue of $2.73 billion.

Looking to the full year, eBay also reduced its revenue guidance to call for 2018 revenue between $10.75 billion and $10.85 billion, down from $10.9 billion to $11.1 billion previously. But eBay also modestly increased its outlook for 2018 adjusted earnings per share to be in the range of $2.28 to $2.32, compared to $2.25 to $2.30 per share previously.

During the subsequent conference call, management explained that the reductions largely stem from the negative impact of the strengthening U.S. dollar, particularly with almost 60% of eBay's business coming from international markets. In addition, and to a lesser extent, eBay is not assuming improvement in the trajectory of StubHub's markets in the second half. 

That's not to say this quarter was terrible. eBay did, after all, move forward with its primary strategic directives in improving its customer experience and steadily growing its active user base.