Expectations were muted going into eBay's (NASDAQ:EBAY) fourth-quarter earnings report last week. Investors were justifiably concerned as the company struggled to find its footing, even while the world embraced e-commerce, a trend that eBay helped popularize. The stock lost a quarter of its value last year as shareholders fled and the company became a popular target for activist investors.
The ecommerce platform responded by topping earnings expectations and announcing that it will begin paying a dividend, a move that seems aimed at calming investors and buying time for the company's long-awaited turnaround.
When 'not bad' is good enough
The company reported record earnings for the fourth quarter and full year. Quarterly revenue of $2.9 billion climbed 6% year over year, topping analysts' expectations of $2.87 billion, and falling just above the high-end of management's guidance. Adjusted operating income of $670 million resulted in adjusted earnings per share of $0.71, up 20% versus the prior-year quarter.
Digging a little further into the results, eBay's marketplace delivered fourth-quarter revenue of $2.3 billion, up 7% year over year, and up 6% adjusting for changes in exchange rates. Gross merchandise volume (GMV) of $23.2 billion edged up nearly 1%, and was up 3% in constant currency. StubHub revenue grew to $314 million, up 2% year over year, with GMV of $1.4 billion, a decline of 2% and 1% excluding exchange rate differences.
Global active buyers grew 4% year over year, bringing the total to 179 million.
Advertising continued to be a bright spot, as revenue from classifieds grew to $263 million, up 8% year over year and 11% in constant currency. The company grew revenue from promoted listings by nearly 150%, the result of 600,000 active sellers promoting 200 million listings.
Ongoing growth initiatives
eBay continues its move into payment remediation, in a move away from longtime payment processor PayPal (NASDAQ:PYPL). eBay announced early last year that it would partner with global payment processor Adyen (NASDAQOTH:ADYYF) to begin intermediating (or processing) its own payments. The move may be costing sales, however, as a survey of users found them more likely to complete a transaction if PayPal was a payment option. During the fourth quarter, eBay intermediated payments of nearly $140 million in GMV.
The company also announced that it is partnering with a number of leading service providers and encouraging shoppers to select and schedule professional auto, home, and electronics installation services for eBay purchases.
An unexpected announcement
The company has been busy buying back shares, repurchasing about $1.5 billion in the fourth quarter and $4.5 billion for the full year. It announced that it will evolve its capital structure with the addition of a quarterly dividend. The first payout will be $0.14 per share, with a yield of about 1.6% at the current share price, and be made on or about March 20, 2019, to shareholders of record as of the close of business on March 1, 2019.
This move has long been sought by shareholders and seems designed to placate investors and buy the company more negotiating room with the activist investors that have recently set up shop with eBay. Elliott Management released an open letter to eBay management, disclosing a 4% stake in the company, and suggesting a number of steps to unlock shareholder value, including spinning off StubHub and the company's classifieds business, and implementing a 1.5% dividend yield -- a concession eBay quickly made.
The company also said it expects to return about $7 billion to shareholders over the next two years, with $5.5 billion occurring in 2019, and about $1.5 billion in 2020.
A look ahead
For the full year, eBay is guiding for revenue in a range of $10.7 billion to $10.9 billion, which would represent growth of between 1% and 3%, excluding the impact of currency exchange rates. For the first quarter, it is forecasting revenue in a range of $2.55 billion to $2.60 billion, representing flat to 2% growth year over year. The company is also projecting adjusted EPS of $0.63 at the midpoint of its guidance.
To put this into the context of overall Wall Street sentiment (while not being lulled into its short-term mindset) analysts' consensus estimates are calling for revenue of $2.66 billion, and adjusted earnings per share of $0.61, a mixed bag versus management's forecast.
While the dividend is nice bonus for shareholders, eBay still faces challenges, as illustrated by a mere 1% increase in GMV year over year. E-commerce is growing, but eBay is being left behind by a trend it helped initiate. Shareholders would be better served if eBay were to reinvigorate its core marketplace business rather than provide a dividend.