It was bound to happen eventually, but investors were still jolted to see eBay's (EBAY 0.88%) growth turn negative in late 2021. The e-commerce platform, which became an essential marketplace for many sellers during earlier phases of the pandemic, is shrinking compared to those high-growth days.
eBay warned this week that sales volumes will remain negative into early 2022 as the company goes up against big spikes from a year earlier.
That pressure will lesson as the year progresses, though, and eBay sees room to expand sales slightly in 2022. Management is also planning to shower shareholders with cash over the next few quarters through dividends and stock buybacks.
Let's dive right in.
Sales were strong
While sales volumes fell 11% this quarter, eBay's fourth-quarter demand was better than expected. Sure, the company handled far fewer transactions than it did a year ago. But that's no surprise given that late 2020 marked historically strong growth. Overall, transactions were down 22% over the holiday period.
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eBay got help from its new advertising and payments businesses and from higher selling prices, so overall organic revenue was up 5%. That result hit the high end of management's guidance. "Rounding out a very strong year," CEO Jamie Iannone said in a press release, "I'm proud of our team for delivering yet another solid quarter."
Looking deeper
There were two warning signs in the report that imply a tough period ahead for eBay. The pool of active buyers shrank at a 9% rate, nearly doubling the pace from the prior quarter. Sellers tend to follow buyers, meaning eBay will have a harder time boosting volumes and collecting transaction fees.
And speaking of fees, eBay's take rate stalled at 11.8% of sales after having jumped in each of the last four quarters. Investors have been hoping to see that figure rise over time thanks to new buyer services like payments processing. The Q4 results suggest that this expansion can't happen during significant volume declines.
The outlook
eBay's 2022 outlook was a good news/bad news scenario. On the bright side, the company forecast that growth will stabilize later in the year so that organic sales stay slightly positive for the full period. In other words, eBay is expecting a soft landing after two years of unusually strong growth.
In addition, the company is planning to deliver lots of cash to shareholders. Management just gave eBay's dividend a 22% hike and also approved a $4 billion stock repurchase plan.
The bad news is that fiscal Q1 is expected to show a sales decline of 5% to 7% as volumes shrink. This slump will likely pressure earnings just as it did in late 2021.
One or two quarters of modest revenue declines shouldn't matter to investors, especially given eBay's big gains in 2020 and 2021. Management is saying that growth will return by the second half of the year, too.
But today's investing climate has investors focused more on the short-term outlook, which is mostly negative for eBay. That sour mood might set investors up for big gains ahead as the company works through its growth hangover. Yet, the shares aren't likely to spike again until eBay's recovery is already underway.
