eBay's Outlook Leaves the Market Wanting More

eBay (EBAY 1.22%) announced third-quarter 2019 results late Wednesday, detailing modest top-line growth and a new multiyear plan to improve margins and reinvest in growth opportunities. It also brought investors up to date on its ongoing review of whether to divest its non-core StubHub and Classifieds subsidiaries. But the online-marketplace specialist also offered underwhelming guidance that left the stock plunging more than 9% in response Thursday. 

Let's take a closer look at what eBay accomplished over the past few months, starting with how its revenue and generally accepted accounting principles (GAAP) earnings changed relative to the same year-ago period:

Data source: eBay.

Excluding one-time items like gains or losses on investments and divested businesses, eBay's adjusted (non-GAAP) earnings from continuing operations grew around 2% year over year, to $563 million. But with the help of aggressive stock repurchases, including 25 million shares bought back for $1 billion this quarter alone, eBay's adjusted net income per share climbed an even better 19%, to $0.67.

For perspective, revenue would have been up around 2% if it weren't for foreign-currency headwinds, but still arrived within eBay's latest guidance for between $2.61 billion and $2.66 billion. Adjusted earnings per share arrived above the high end of eBay's expected $0.62 to $0.65 range.

Image source: eBay.

Digging deeper into the drivers of eBay's results, active buyers increased 4% (roughly steady with last-quarter's growth), to 183 million across its platforms. But gross merchandise volume (GMV) fell 5% as reported and 2% at constant currencies to $20.5 billion, translating to a 1% decline in reported Marketplace revenue (or growth of 1% at constant currency), to $2.1 billion.

Outside of the core Marketplaces segment, StubHub revenue grew 5%, to $306 million, on roughly flat GMV of $1.2 billion. Classifieds platform sales rose 4% as reported and 8% at constant currency, to $265 million.

As for eBay's supplementary growth initiatives, over 1 million active sellers promoted more than 300 million listings on the marketplace last quarter -- up from 940,000 sellers promoting 250 million listings in Q2 -- driving a 120% currency-neutral increase in revenue, to $103 million. Meanwhile, eBay processed over $500 million in payments via its year-old managed-payments offering this quarter, bringing total payments processed to $1.1 billion since the offering's launch around this time last year.

On executive turnover (and that light guidance)

Previous eBay CEO Devin Wenig also stepped down last month citing differences of opinion with eBay's board of directors amid pressure from activist investors. eBay identified Wenig's permanent replacement as interim CEO Sccott Schenkel, who noted in yesterday's press release that the company's results were approximately in line with expectations as it worked on "improving the Marketplace experience, creating better outcomes, and maintaining momentum in advertising and payments."

"We also made progress in our portfolio review and completed a thorough operating review that has resulted in a three-year plan to drive margin improvement while enabling reinvestment in critical customer initiatives," Schenkel added.

In the meantime, eBay told investors to expect fourth-quarter 2019 revenue of between $2.77 billion and $2.82 billion, good for roughly flat organic constant-currency growth at the midpoint, plus or minus 1%. On the bottom line, that should translate to adjusted earnings per share from continuing operations of $0.73 to $0.76, up from $0.71 per share a year earlier. Unfortunately, however -- and this explains today's drop -- most analysts were modeling adjusted earnings near the top end of eBay's target range on higher revenue of $2.85 billion.

As such, on one hand, eBay revised its full-year 2019 outlook to call for revenue between $10.75 billion and $10.80 billion, which still represents organic currency-neutral growth of roughly 2% to 3% but also marks a $30 million decrease from the top end of its old guidance range. On the other hand, eBay simultaneously increased its outlook for 2019 adjusted earnings per share to be in the range of $2.75 to $2.78, up from $2.70 to $2.75 before.

Even with eBay's relative outperformance on the bottom line, however, the market was simply unwilling to forgive the company for its apparently waning top-line momentum. With shares up 36% so far in 2019 leading into this quarterly update, eBay stock is understandably falling as investors absorb the news.