Because of unusually strong e-commerce demand a year ago, eBay (EBAY 1.01%) is going through a major growth hangover that's likely to pressure the business at least through the first half of 2022. Sales volumes will likely be down significantly in its upcoming first-quarter earnings report, set for May 4. The e-commerce giant might struggle to achieve even flat revenue results for the full year.
Yet eBay has some advantages that help it stand out in the crowded e-commerce industry. It is boosting market share in attractive niches like collectibles, trading cards, and sneakers while adding new revenue lines including payments processing and advertising. And its asset-light operating model allows it to generate tons of cash from a relatively small revenue base.
Let's see whether these wins might help the stock return to a growth path this year.
The buyer pool
Expectations are low for the first-quarter sales metric, which might show a nearly 20% revenue drop year over year when eBay makes its announcement on Wednesday, May 4. The big number to watch is the change in its buyer pool.
eBay has shed buyers at an accelerating rate in each of the last three quarters, and that worsening trend might continue for another quarter or two. Last year's growth was phenomenal, after all, as nearly all commerce was happening online due to COVID-19 lockdowns.
Management has predicted that organic sales will decline by as much as 7% this quarter after jumping last year. Ideally, though, the pace of declines in its buyer pool will slow, indicating a stabilizing trend ahead in Q2 that lays the groundwork for a return to growth in the second half of the year. eBay's surest path toward that rebound involves building a bigger platform in pre-owned and collectible product niches like sneakers, trading cards, and luxury watches. Watch for executives to highlight some of these areas on Wednesday.
eBay generates much of its profits from the flat transaction fees it charges sellers to use its platform. Sellers often pay a small listing fee, plus a percentage of the sales price. One of its main priorities is boosting the value of those seller services so it can increase those fees over time. New offerings like payments processing and marketplace advertising fit right into that strategy.
However, eBay's fees stalled at 12% of sales last quarter after expanding for over a year. Investors will be looking for evidence that this metric can keep expanding since it directly affects the company's overall profitability.
A new outlook
Management is calling for revenue to land roughly flat in 2022, with modest losses in the first half being offset by a return to growth later in the year. We'll get an important update on that outlook on Wednesday.
Looking further out, watch for CEO Jamie Iannone and his team to talk about the wider rebound picture, which currently sees marketplace volumes returning to growth in fiscal 2023 while accelerating in 2024. Margins should expand over that time, too, with help from those rising fees.
If the latest results keep eBay on that positive path, then investors might have more reasons to consider owning shares. But the stock might not start recovering until the beginning of its operating rebound, which may still be a few months away.