eBay (EBAY 1.70%) recently announced strong third-quarter earnings results that passed investors' expectations on key metrics like sales growth, profits, and cash flow. The online-marketplace giant also raised its 2020 outlook, implying continued momentum heading into the holiday shopping period.
In a conference call with Wall Street analysts, CEO Jamie Iannone and his team added context to that forecast while breaking down the major factors supporting its gains in market share this year.
Let's look at a few highlights from that presentation.
Context on an unusually strong quarter
"Gross merchandise volume in marketplace was 21%," Iannone said. "To put that in perspective, we added over $4 billion in volume in Q3 versus last year, more than many businesses do annually."
Most global online businesses, including Amazon, Walmart, and Wayfair, have seen huge spikes in demand in recent months as the pandemic accelerated the shift toward e-commerce spending. eBay's services match sellers to buyers, and that positioning has helped it close the growth gap with these vertically integrated peers.
In fact, sales growth only slowed slightly versus peak pandemic-closure months in the second quarter, with volumes rising 21% compared with 29%. That result beat management's forecast for a growth rate in the high-teen percentages, and implies wins in the core marketplace segment and in new revenue lines like payments and promoted listings.
Going on offense
"A year ago, we were losing share in [the collectable sneakers] category, but now we're seeing over 50% [volume] growth year to date -- and that was before launching the authenticity guarantee," Iannone said. "And just last week, we announced the launch of new elevated experience for certified refurbished products."
Management highlighted the sneaker category -- where buyers tend to make more purchases than its average shopper -- as a recent success story. After finding ways to win share in that segment through the pandemic, eBay is seeking to press its lead with enhancements like a "certified authenticity" guarantee.
This service could elevate other used and refurbished product niches, which executives see as potentially adding significantly to sales growth. "We see tens of billions in untapped potential in the global refurbished market," Iannone said.
Capital spending plans
"Our margin commitments remain in place, and we're on track to deliver at least 2 points of operating margin growth by 2022 as compared with 2019," CFO Andy Cring said.
Cash flow declined 18% in Q3, but the bigger-picture trend here is solidly positive. Free cash is up 30% through the first nine months of the year, to $1.9 billion.
This surge was supported by another increase in operating profit margin this quarter and, together with cash from divestments like StubHub, has given management a flood of capital resources.
eBay is directing some of that cash back into the business, but is also spending heavily on debt repayment, dividends, and stock repurchases. COVID-19 and recessions in many markets mean the next few quarters are unusually cloudy when it comes to the growth outlook.
But the company is confident in its longer-term growth plan, which pairs modest market share gains with improving profitability to support market-beating investor returns.