eBay (EBAY 1.40%) is still working on that soft landing. The online marketplace business recently reported another quarter of weakening growth metrics as e-commerce slows following soaring demand in 2021. Management projected further declines ahead in 2022.
The company had some good news for investors, though, including growing volumes in a few key niches as well as solid cash flow. These wins suggest the business might return to a more normal sales and earnings pace by 2023.
Let's dive right in.
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Marketplace revenue
eBay's business is shrinking at an accelerating rate. Its buyer pool declined by 13% compared to a 9% decline in the prior quarter. Sales volumes on its platform fell even faster, down 20% in the first quarter compared to a 10% drop in each of the last two quarters.
It's no surprise that fewer people are conducting business through eBay's platform compared to early 2021 when all shopping was happening online. And executives were happy to stress that the demand drop-off was slightly better than expected.
Non-GAAP profit margin was also surprisingly high although it was down compared to last year. "Our team has delivered another strong quarter, at the high end of our expectations," CEO Jamie Iannone said in a press release.
The bright spots
eBay got a sales lift from its relatively new payments and advertising businesses. There were several niche marketplace businesses that performed well, too, including the luxury watch category, the sneaker platform, and eBay's refurbished consumer electronics categories.
These segments represent competitive advantages for the business since it is difficult for e-commerce peers to duplicate these marketplaces. eBay's main challenge is to extend that advantage into other parts of the business.
eBay's finances continued to impress even though its earnings metrics worsened compared to last year. Free cash flow was $546 million, or 22% of sales. eBay's non-GAAP operating profit margin landed at about 32% of sales, which is far above its vertically integrated rivals like Walmart. eBay used that cash to repurchase its stock, after prioritizing investments into its growth initiatives.
Looking ahead
Management lowered the 2022 outlook slightly, in part because of suspended operations in Russia. Organic sales should now fall by between 3% and 6% rather than rising by as much as 3%. Non-GAAP earnings is now expected to land between $3.90 and $4.11 per share, down from the prior forecast range of $4.20 to $4.40 per share.
That reduction caught some investors by surprise, and so the stock fell in the wake of the announcement. I wouldn't expect shares to start beating the market again until eBay can show that its buyer pool and sales volume trends are no longer weakening.
