eBay (EBAY -0.46%) investors haven't had much to celebrate over the last several months. While the e-commerce giant is still growing following soaring results in 2020, its sales boost isn't coming from gains in the core business. The expansion prospects aren't exciting for 2022 either, as it might take several quarters before transaction volumes return to positive territory.
There are good reasons to like the stock, though, heading into its fourth-quarter announcement in just a few days. eBay's finances are stronger than ever, and cash returns are set to soar. These trends might support solid returns for shareholders as they wait for the business to start recovering in 2022.
Let's take a closer look at the results set for Feb. 23.
eBay beat Wall Street's sales expectations for a second straight quarter last quarter, with organic revenue rising 11% in Q3. That success convinced management to raise its 2021 outlook -- again -- to target sales growth of between 8% and 10%.
The good news is that eBay is still growing compared to 2020's 19% revenue spike, mainly thanks to higher order values and growth from its payments processing and advertising business lines. On the other hand, transaction volumes are falling hard as consumers shift priorities back toward other niches like restaurants and in-person entertainment.
That's why it will be key to follow changes in eBay's buyer pool over the next few quarters for signs that the business is stabilizing. That metric worsened to a 5% loss last quarter compared to a 2% drop in Q2 and an 8% spike in Q4 of 2020.
Taking on a higher profit
eBay's light operating model makes it much more profitable than integrated peers like Amazon that handle their own inventory, shipping, and warehousing. Operating margin sits above 20% of sales, or more than twice Amazon's rate.
eBay has room to keep pushing margins higher, mainly by adding value to the services it offers buyers. The holiday quarter was a busy one on this front, with product pages receiving usability upgrades and eBay's advertising and payments platforms expanding.
Look for signs of success showing up in rising fees for sellers. eBay's "take rate" has jumped to a new high above 12% of sales, in fact, but smaller peers like Etsy charge 18% today.
The 2022 outlook
Most investors are looking for eBay to sound a conservative note about growth and earnings in 2022. Peers like Shopify have forecast weak sales, especially early in the year, as e-commerce shopping patterns revert to a more normal cadence following the pandemic. eBay might follow its rivals in announcing significant new spending, too, aimed at building infrastructure around all the extra volume that it has accrued over the last three years.
Those factors imply a weak performance for eBay's stock over the short term. But the company still boasts qualities that make it attractive as an investment, including industry-thumping profitability and cash flow.
As long as the company continues winning buyers over to its platform while boosting the value they receive from the service, then shareholders should be happy that they held on through any volatility around eBay's early 2022 performance.