eBay Inc. (NASDAQ:EBAY) released strong third-quarter 2018 results on Tuesday after the market closed, including sustained momentum from its core marketplace business, some promising new partnerships, and plans to increase its presence in the payments and advertising spaces.

With shares up nearly 6% in early trading as of this writing, let's take a closer look at how the e-commerce giant started the second half, and what we should expect in the coming months.

Modern eBay front desk with company logo on the wall behind it

Image source: eBay.

eBay results: The raw numbers

Metric

Q3 2018

Q3 2017

Year-Over-Year Growth

Revenue

$2.649 billion

$2.498 billion

6%

GAAP net income from continuing operations

$720 million

$520 million

38.5%

GAAP earnings per diluted share

$0.73

$0.48

52.1%

Data source: eBay.

What happened with eBay this quarter?

  • Adjusted for unusual items, eBay's non-GAAP net income from continuing operations rose 8% year over year to $554 million, or $0.56 per share.
  • For perspective, revenue was near the low end of eBay's guidance provided in July between $2.64 billion and $2.69 billion. But adjusted earnings were at the high end of guidance for a range of $0.54 to $0.56 per share.
  • Gross merchandise volume (GMV) increased 5% year over year to $22.7 billion. 
  • Active buyers increased 4% year over year across all platforms to 177 million, up from 175 million last quarter.
  • Marketplace platforms revenue grew 6% (5% at constant currency) to $2.1 billion, on a 5% increase in GMV to $21.5 billion.
  • StubHub revenue climbed 7% to $291 million, driven by a 7% increase in GMV to $1.2 billion.
  • Classifieds revenue grew 8% (11% at constant currency) to $254 million.
  • eBay generated operating cash flow of $560 million, and free cash flow of $381 million.
  • eBay began rolling out its new payments experience in the U.S. last month, intermediating $38 million of GMV so far. It also started accepting Apple Pay through the new experience.
  • On the advertising front, eBay expanded its Promoted Listings placements with more than 400,000 sellers promoting over 160 million listings.
  • It struck a new partnership with Square Capital to enable U.S. sellers to access up to $100,000 in funding in as short a time as one day to grow their businesses.
  • eBay completed its previously announced sale of its equity investment in Flipkart for net proceeds of $1.0 billion, ending its strategic relationship with the company.
  • Two weeks ago, eBay announced its intent to acquire U.K.-based classifieds leader Motors.co.uk for an undisclosed sum.
  • It repurchased 29 million shares for $1 billion this quarter, leaving $4.7 billion remaining under its buyback authorization.

What management had to say

CEO Devin Wenig stated: "This quarter we continued to make foundational investments to improve the long-term competitiveness of our marketplace while setting the stage for significant growth opportunities. We will continue to innovate the customer experience while executing our growth initiatives in Payments and Advertising to position eBay for future success."

Wenig elaborated during the subsequent conference call:

We'll continue to focus on delivering significant product experienced changes for new customers while evolving new experience for our existing base of users at a more measured pace. Similarly, we'll continue to market our brand, but we plan to target our marketing to focus more heavily on acquiring new buyers, while reducing our overall investment. We expect that this will result in slower growth for a period of time as we grow our user base and change the mix of customers. However, this will also allow us to deliver strong earnings growth over this period of time through operational margin expansion and ongoing aggressive capital return, while positioning the business for stronger growth in 2020, as payments and advertising continue to ramp.

Looking ahead

For the fourth quarter of 2018, eBay sees revenue between $2.85 billion and $2.89 billion, good for organic growth of 4% to 5%. Fourth-quarter adjusted earnings should be in the range of $0.67 to $0.69. 

As such, and keeping in mind Wenig's comments on its fundamental business shift above, eBay reduced its full-year outlook to call for 2018 revenue between $10.72 billion and $10.76 billion (down from between $10.75 billion and $10.85 billion before). eBay also narrowed its guidance for 2018 adjusted EPS to be in the range of $2.29 to $2.31 (from $2.28 to $2.32 previously).

In the end, it seems the market is more than willing to accept eBay's decision to accept more modest top-line growth in the near term, especially if it means longer-term growth with a healthier, more profitable business in the meantime.

Steve Symington has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Square. The Motley Fool has the following options: short January 2019 $80 calls on Square. The Motley Fool recommends eBay. The Motley Fool has a disclosure policy.