This morning's most popular four-letter swear word: eBay (NASDAQ:EBAY).
The online commerce enabler posted reasonable third-quarter numbers, but then it let investors down with a dreary outlook for the current quarter.
Given the degrading performance of its namesake auction site and the consistent growth of its PayPal online transaction platform, why are we even calling this company eBay anymore? This is PayPal Incorporated now.
At the very least, there should be a new moniker morphing the two properties. eBayPal has a nice ring to it. PayBay has a groove you can dance to.
But who cares, really? In a couple of years, we'll all be calling this company SkypePal.
Q3 was OK
The dot-com bellwether's summer went reasonably well. Revenue inched 12% higher to $2.12 million, in line with Wall Street's estimates. Non-GAAP profitability rose 11% to $0.46 a share, surprisingly better than the flat $0.41 showing that Mr. Market was expecting.
The performance gets murky only when you look at the company's mere 4% uptick in marketplace revenue, a figure that was positive only because StubHub and the company's growing empire of global classified websites gained ground during the period. Things weren't so hot at eBay.com itself, where gross merchandise volume being exchanged shrank by 1% over last year's showing.
eBay's marketplace business is smoking in global classifieds. Advertising revenue more than doubled, with eBay's portfolio of properties -- spearheaded by Kijiji -- attracting an average of 84 million unique visitors a month.
The party continues at PayPal, where a 27% spike in revenue comes courtesy of a 19% increase in active registered accounts. Look over your shoulders at those numbers again. See how revenue is growing more than its user base? That's fantastic, since it means the company is milking more out of its average user. In other words, PayPal is becoming even more ubiquitous. That's easy to believe, with more and more merchants accepting PayPal. The latest commerce heavies to hop on the "PayPal accepted" bandwagon during the quarter include American Eagle Outfitters (NYSE:AEO), Wal-Mart's (NYSE:WMT) Walmart.com, and Continental Airlines (NYSE:CAL).
Skype is still a rocket, having scored $143 million in revenue on a whopping 370 million users, although revenue growth decelerated to just a 46% year-over-year gain. Skype now accounts for nearly 7% of eBay's total revenue, so it will clearly take time before the Web chat platform becomes a needle mover.
Q4 will be ugly
Turn the page, and it's obvious that we're looking at a blue Christmas for eBay. The company is looking to earn between $0.39 and $0.41 a share in adjusted profits on $2.02 million to $2.17 million in revenue.
This isn't just less than what Wall Street was expecting. It's less than the $0.45 a share it earned on $2.2 billion in revenue a year ago. It's also sequentially lower on the bottom line -- and possibly the top line -- than what it posted in its recently concluded third quarter.
Are things that bad, eBay? This is the seasonally potent holiday quarter, where shoppers should be feverishly trading Elmo Live dolls, Nintendo Wii consoles, and "What Would Meg Do?" bumper stickers. You know that PayPal and Skype will keep growing. The company's recent overseas classifieds acquisitions should also come in handy. The odd word out is eBay itself. Ouch!
The countdown to PayBay
This hopefully is the only shoe to drop when it comes to e-tail stocks. Can you imagine if Amazon.com (NASDAQ:AMZN), Overstock.com (NASDAQ:OSTK), and Blue Nile (NASDAQ:NILE) also threaten to come up short sequentially during the telltale holiday quarter? Analysts are expecting sequential top-line gains of 68%, 78%, and 74% respectively out of those three bellwethers. This sector will clear out quickly if any of these companies follows eBay's lead.
That should not be the case, of course. Shoppers are still flocking online. It's eBay.com itself that's losing relevance in the world. Heck, it's even losing relevance within eBay, the company. The third quarter was the first period in eBay's history in which payment volume from PayPal's merchant services exceeded eBay's marketplace volume.
The company is trying. It bought back 25 million shares during the quarter. And with $3.3 billion in the bank, it has enough wiggle room to buy more shares at today's historically low prices, go after more acquisitions, and replace all of its stationery with a new name.
I guess we still need to come up with that new name, though.
Wait! I've got it.
"Not eBay!"
More items in the eBay bid basket:
- The company had a bag of press releases earlier this month.
- Things just haven't been the same since Meg Whitman went away.
- eBay sure seems to have overpaid for Skype, but the jury is still out on Bill Me Later.
- It's So Much Worse Than You Think
