Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

eBay Raises Its Earnings Outlook Again

By Demitri Kalogeropoulos - Jul 18, 2019 at 12:30PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The online marketplace is seeing steady sales growth heading into the second half of the year.

Investors were hopeful leading up to eBay's ( EBAY -0.64% ) second-quarter earnings report. The online marketplace had boosted its outlook after surprisingly strong sales growth to start off the fiscal year. That modest success, plus indications that management was preparing to sell underperforming parts of the business, contributed to market-thumping gains for shareholders through the first half of 2019.

On Thursday, eBay sustained that positive momentum by reporting stable sales growth and rising margins. The company also hinted that a few major asset sales could occur sometime in the next few quarters.

Let's dive right in.

A woman accepts boxes from a deliveryman

Image source: Getty Images.

Stable sales growth

Reported sales ticked higher by just 2% but eBay has a huge international business, so it's more useful to look at currency-neutral revenue changes. By that measure, sales rose 4% to match last quarter's rate.

Those 4% gains might not impress when compared to fully integrated e-commerce giants like Walmart and Amazon. These peers are expanding product sales by more than 20% these days. However, eBay is outperforming expectations given that it has trounced its original 2019 target of 1% growth in each of the last two quarters. Its asset-light selling model means it requires only modest gains to power healthy returns, too.

The growth news wasn't uniformly positive. eBay reported its third straight quarter of falling sales volumes in the U.S. market and a fourth straight slowdown internationally. Higher selling prices helped offset those declines. Meanwhile, its pool of active buyers expanded at the same 4% pace that the company has seen for over a year even though that figure rose 5% as recently as 2017.

Profits and growth businesses

eBay's finances only got stronger during the period. The company generated $723 million of operating income, meaning it turned 27% of its revenue into profit. That's up from 25% a year ago and far above the low-single-digit margins that both Walmart and Amazon maintain.

eBay got help in this department from cost cuts and from its highest take rate -- the fee it charges sellers to use its platform -- in over a year. That metric ticked up to 9.4% from 9.3% in the prior quarter and 8.8% a year ago.

eBay's two newest business lines continued to march closer to the point where they will begin contributing materially to reported sales and profits. The payments processing platform grew 40% from the previous quarter and now counts over 6,000 participating sellers. Its internal ads business more than doubled revenue to just under $100 million.

Capital plans

eBay didn't announce final plans to sell either the StubHub or Classifieds segments of the business, but management said in the earnings conference call that it is "actively reviewing the role" of these units in the portfolio. Investors can expect to learn the conclusion of that review sometime in the next few quarters.

In the meantime, eBay continues to see a brighter future ahead. The company's projected core growth rate should be between 2% and 3%, up from the initial predicted range of 0% to 2%. Cost cuts have helped support its second straight upgrade to the profit forecast, too, with adjusted earnings now on pace to land between $2.70 and $2.75 per share compared to last quarter's range of between $2.64 and $2.70 per share. The improving sales and earnings outlook implies eBay is finding ways to attract more buyers and sellers to its business, with faster volume growth likely to follow.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

eBay Inc. Stock Quote
eBay Inc.
$67.05 (-0.64%) $0.43
Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
$137.51 (1.51%) $2.04, Inc. Stock Quote, Inc.
$3,389.79 (-1.38%) $-47.57

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/05/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.