eBay's (EBAY +2.75%) recently announced second-quarter results weren't well received by investors. The online selling platform managed healthy profit growth, but the period was marked by a surprising growth slowdown that might threaten its goal of achieving faster overall sales growth in 2018.
CEO Devin Wenig and his team held a conference call with Wall Street analysts to put the second-quarter results into perspective and detail management's plans for getting back on track in the back half of the year. Below are a few highlights from that presentation.
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Growth challenges
"While we delivered strong earnings growth this quarter, we encountered some revenue headwinds."
-- Wenig
eBay's sales gains slowed during the quarter, and that weakening trend showed up in a few of its key metrics. Buyer gains held steady at 4%, for example, despite the extra benefit from the company's purchase of the Giosis platform in Japan. After accounting for that acquisition, buyer growth would have been 3%, eBay's slowest expansion rate in over a year.
Volume growth fell to 5% in the U.S. market, too, compared to 7% in the prior quarter. Overall, revenue rose just 6%, excluding currency swings, for a slight decrease from last quarter's 7%.
Executives detailed several reasons for the slowdown, including muted gains from its new product shopping pages in the marketplace segment and a surprise weakening of demand for StubHub tickets tied to concerts, theater events, and Major League Baseball.
Investing in the business
"We delivered non-GAAP operating margin of 25.2%, which is down 120 basis points versus last year, driven by increased investments in payments, marketing, and Japan."
-- CFO Scott Schenkel
A few trends combined to push operating profitability lower by more than a full percentage point, including a slight decrease in eBay's transaction-fee rate. The bigger contributors were a 1.7 percentage-point increase in sales and marketing spending and a more-modest bounce in product development costs.
Executives balanced those expenses with aggressive cost cuts that have freed up capital to direct toward marketing initiatives in the second half of the year, while protecting eBay's broader earnings growth targets.
Improving the buying and selling experience
"We continued to execute our strategy, improving the core eBay experience, investing in service, and clarifying our brand while pursuing significant opportunities in advertising and payments."
-- Wenig
eBay made progress in its major initiatives aimed at improving the shopping experience, but the wins didn't have an immediate impact on its growth trends. Executives said their new product-based shopping pages helped convert more new buyers, for example, but didn't move the conversion needle with its huge base of existing users. Similarly, management saw encouraging, but modest, early results from its new seller promotion tools and its recently launched brand campaign.
An updated 2018 outlook
"We expect to deliver core growth acceleration [in gross merchandise volume] in the second half of 2018. We're focusing to an even greater extent on initiatives that will have the greatest impact on our customers and our business, while launching a series of innovative new buyer experiences. At the same time, we're stopping work on less-critical projects that are not moving the needle or are more speculative."
-- Wenig
Following two consecutive quarters of deceleration in key growth metrics, eBay lowered its 2018 sales prediction to gains of between 6% and 7%, compared to the prior target of between 7% and 9%. That new outlook implies that its multiyear revenue acceleration streak will end this year, in part because of challenges in the StubHub segment.
However, the important numbers to watch going forward are eBay's buyer-pool growth and its marketplace sales volumes, especially in the U.S. Both of these metrics have now slowed in each of the past two quarters, and eBay will need them to bounce back over the next six months if management is going to hit its lowered sales forecast.
