eBay (NASDAQ:EBAY) investors got a shot of enthusiasm a few months ago when the company announced surprising improvement across several key operating metrics. To be sure, the online marketplace's growth is still trailing fully integrated e-commerce rivals like Walmart and Amazon.com. But its latest initiatives have the management team feeling more bullish about fiscal 2019, both in terms of sales gains and profitability.
That optimism raises the bar for eBay's upcoming earnings report, set for July 17, which might help determine whether the stock continues trouncing the market as it has for most of the past year. Here are three things to watch for:
1. E-commerce wins
eBay's middleman approach can make its growth rate appear tiny compared to other high-volume e-commerce retailers. Sales rose by just 4% last quarter compared to the 37% spike that Walmart notched in its online business. But eBay's asset-light operating model, which pushes most of the selling costs to suppliers, means it needs far less growth to produce healthy returns. That's why it was such good news last quarter when sales growth outpaced management's forecast of between 0% and 2%.
Another healthy revenue uptick would be celebrated by investors this week, but it's important to look behind that broad sales figure. Specifically, eBay needs to boost its pool of active buyers at a pace that at least matches the 4% rate of the past 12 months, especially considering growth was closer to 5% in 2017. Also keep an eye on sales volume, which dipped into negative territory in the core U.S. market. eBay made up for that decline, in part, thanks to higher seller fees. But that's not a long-term solution.
2. New business lines
CEO Devin Wenig and his team have been talking up the prospects for two new business lines that together could speed sales growth and improve earnings in the coming years. Yet investors haven't seen a tangible impact from eBay's next-gen payment-processing rollout or its new push into third-party advertising.
That might start changing this week. Last quarter the payments business grew 60% to over $200 million, and that figure could soar following the recent introduction in big markets like Germany. As for advertising, revenue is still a tiny fraction of the $2 billion that eBay books in its marketplace in a given quarter. But the segment doubled in the most recent quarter and could quickly become a meaningful contributor to sales and profits if it keeps expanding like that for a few more quarters.
3. Capital returns
eBay isn't scheduled to reveal the conclusions of its strategic review, which might include a sale or spinoff of major assets like StubHub, until later this year. Yet investors may get some clues about those upcoming moves by watching how well the StubHub and classifieds segments performed over the last few months.
Each reported some of the weakest growth in over a year last quarter, and another disappointing outing would add pressure on the management team to find ways to divest the businesses if they can do so without destroying shareholder value. Ironically, a rebound in those segments might be taken as bad news by investors since it would suggest no major restructuring of eBay's business ahead and simply a continuation of steady capital returns through stock buybacks and its modest dividend payment.