eBay's Guidance Underwhelms (Again)

eBay (EBAY 0.61%) may have released slightly better-than-expected fourth-quarter 2019 results on Tuesday after the markets closed, but you wouldn't know it, with shares of the online marketplace platform down nearly 5% since then in response.

It certainly didn't help that eBay stepped over a low bar, beating the conservative guidance that left investors wanting more three months ago. To that end, eBay's drop can be credited once again to its seemingly light view of the months ahead.

Before we get there, let's take a closer look at eBay's latest quarter, starting with its headline numbers:

Data source: eBay. GAAP = generally accepted accounting principles.

Image source: Getty Images.

Adjusted for one-time items, eBay's non-GAAP (adjusted) earnings from continuing operations fell a more modest 2% to $661 million. And thanks to the company's ambitious stock-repurchase efforts -- including 28 million shares bought back for $1 billion alone in Q4 -- eBay managed to increase its adjusted earnings per share by 15% to $0.81.

By comparison, both the top and bottom lines compared favorably to the midpoints of eBay's own outlook provided in October, which called for revenue of between $2.77 billion and $2.82 billion and adjusted earnings per share of $0.73 to $0.76.

The trends underlying these results were mostly encouraging; active buyers increased 2% year over year (remaining steady from last quarter) to 183 million. And revenue would have been flat had it not been for the negative effects of foreign currencies. eBay's marketplace platforms' gross merchandise volume (GMV) also fell 5% as reported (down 4% on a currency-neutral basis) to $22 billion, translating to revenue of $2.2 billion (down 3% as reported and 1% at constant currencies).

eBay also continued to advance its younger strategic growth initiatives. The company's new Promoted Listings service saw revenue soar 73% year over year to $136 million, with more than 1.1 million sellers promoting (advertising) over 320 million listings in the holiday quarter -- up from one million active sellers and 300 million listings in the third quarter. On the managed payments side, eBay has now processed more than $2 billion of gross merchandise volume for nearly 25,000 sellers (up from $1.1 billion last quarter).

Meanwhile outside of the core marketplace segment, classifieds platform revenue rose 3% as reported (6% at constant currency) to $269 million, and StubHub revenue grew 2% to $321 million. 

That said, in a culmination of a months-long strategic review process to determine the future of its non-core subsidiaries, eBay also reached a deal during the quarter to divest StubHub to global ticket marketplace specialist viagogo for $4.05 billion. That transaction should close by the end of the (current) first quarter of 2020.

Perspective on guidance

"As we enter 2020, our priorities are clear -- we will continue to drive revenue through our growth initiatives, deliver more seller tools, improve the buyer experience by leveraging our structured data foundation, all while driving more margin expansion," said eBay CEO Scott Schenkel. "We believe these efforts will position us for sustainable, profitable long-term growth and I am excited by the opportunities ahead."

For the first quarter of 2020, eBay anticipates revenue of between $2.55 billion and $2.60 billion, the midpoint of which would represent roughly flat organic currency-neutral growth from last year. That should translate to GAAP earnings per share of $0.50 to $0.53, and adjusted earnings per share of $0.70 to $0.73. By comparison, most analysts were looking for Q1 earnings near the low end of that range, but on higher revenue of $2.64 billion.

As such, eBay sees full-year 2020 revenue of between $10.72 billion and $10.92 billion, good for organic currency-neutral growth of 1% to 3%, with adjusted earnings per share of $2.95 to $3.05. Keep in mind, however, that this outlook assumes all current subsidiaries (including StubHub) will be in place for the entire year. Here again, Wall Street was modeling lower earnings of $2.86 per share, but on revenue right at the top end of eBay's guidance range.

In the end, while eBay is doing an admirable job expanding margins and propping up its bottom line, it's obvious the market is bothered by its top-line headwinds as other online shopping platforms like Amazon.com continue to enjoy enviable growth. As long as that dynamic holds true -- that is, until eBay shows more tangible progress toward fulfilling its promise for "sustainable, profitable long-term growth" -- I suspect eBay's share price will remain under pressure.