E-commerce retailer and auction site eBay (EBAY 0.31%) could report fiscal 2021 fourth-quarter earnings on Feb. 1. The company thrived at the pandemic's onset when hundreds of millions of people switched much of their shopping to online platforms for fear of contracting COVID-19.
Now that billions of doses of effective vaccines against the coronavirus have been administered, folks are cautiously returning to old shopping habits in person. The reversal of pandemic behavior is hurting eBay's sales and customer engagement. Still, the rise of supply-chain bottlenecks and shortages could have played a positive role in eBay's upcoming earnings results. This is one metric investors should pay attention to in Q4. Let's look more closely.
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Consumers may have returned to eBay
Recall that eBay does not own any of the inventory for sale on its website. Instead, its role is to connect buyers and sellers and facilitate transactions on its platform. eBay makes money by taking a percentage of each sale (the take rate) and it has been upping that portion. From second-quarter 2020 to third-quarter 2021, eBay increased its transaction take rate from 9.2% to 12.1%. The rise in its take rate was the primary reason eBay increased revenue by 11% year over year in Q3.
Gross merchandise value (the total sum of sales on its platform) declined from $21.7 billion in Q3 2020 to $19.4 billion in Q3 2021 (ended Sept. 30). The fall in spending on eBay coincides with the economy's reopening. Widespread availability of COVID-19 vaccines has allowed folks to feel safer venturing outside where they have more options for spending their money. Of course, if people are spending more money shopping in person, that will be detrimental to e-commerce businesses like eBay.
However, the pandemic has also led to another evolving trend: worldwide supply-chain shortages. While it's true that folks are feeling better about resuming some activities they gave up since the pandemic's onset, working in person does not appear to be one of them. It makes sense looking at it from a laborer's viewpoint; your wages are roughly the same, but you are at risk of contracting a potentially deadly virus on the job.
It's no surprise that fewer people are willing to work under these conditions -- and many others are unable to do so because of infection during any given week. So the production and movement of goods have been constrained, and consumers are more often finding their favorite items sold out.
Therein lies a potential tailwind for eBay -- the site is rarely sold out of anything. If an item is sold out at your favorite retailer, eBay probably has it for sale. Of course, it is probably listed at a higher price, but you can choose to pay the premium and make the purchase. So the persistence of supply-chain shortages throughout the holiday quarter could have boosted eBay's gross merchandise value.
What it could mean for eBay investors
Analysts on Wall Street expect eBay to report revenue of $2.6 billion in Q4 and earnings per share (EPS) of $1.00. If it hits the EPS estimate, that would be an increase of 16.3% from the same quarter a year earlier.
eBay's stock is already down over 10% year to date in 2022. If it surprises to the upside, it could cause its share price to reverse.
