Please ensure Javascript is enabled for purposes of website accessibility

eBay Inc Delivers Solid Earnings

By Andrés Cardenal - Apr 27, 2016 at 8:19PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Overall revenue growth remains modest, but key areas are showing promising potential.

Image source: eBay.

eBay (NASDAQ: EBAY) announced earnings for the first quarter of 2016 on Tuesday, April 26. Revenue growth has been under pressure over the past several quarters, and it looks like this will remain the case in the middle term. Management is, however, doing a sound job of boosting profitability.

The top line
The company is working on multiple initiatives to accelerate growth. eBay is demanding more structured product information from sellers, building better product catalogs to improve discoverability, and providing more powerful data analysis tools for sellers to offer the right merchandise at the correct price. While these initiatives have good intentions, growth in the marketplace business remains unimpressive.

eBay ended the first quarter of 2016 with 162 million active buyers, a 4% increase versus the same quarter in the prior year. Total gross merchandise volume (GMV) amounted to $20.5 billion during the period, a modest 1% increase but a more encouraging 5% jump on a constant currency basis.

eBay's online ticketing service, StubHub, represents a relatively small share of the business, but it's growing at an impressive speed: StubHub processed $869 million in GMV last quarter, a strong 29% increase.

Total revenue for eBay was $2.14 billion, a 4% increase in U.S. dollars and a 6% growth on a constant currency basis. Revenue from the marketplace business was $1.5 billion, accounting for 70% of total sales, and declining by 2% versus the first quarter in 2015. StubHub produced $177 million in sales last quarter, or 8% of total revenue. Sales in this division grew by a strong 34% annually. Revenue from marketing and other services was $460 million, representing 22% of sales and growing by a vigorous 17% year over year.

The marketplace business produces the lion's share of revenue, so eBay needs to jump-start performance in this key division if it's going to accelerate total revenue growth in the medium term. Nevertheless, businesses such as StubHub and marketing services should account for an increasing percentage of overall revenue over time, which could have positive implications on overall sales growth going forward.

Earnings and cash flows
Even if eBay is working on improving the user experience, management is also running a tight ship and keeping costs under control. The result of this is expanding profit margins, so earnings per share is growing at a faster rate than sales.

Operating margin was 28.7% of revenue last quarter, a considerable increase from 25.7% in the same period last year. When excluding stock-based compensation and other expenses, eBay retained a huge 33.4% of sales as non-GAAP adjusted operating margin during the period.

After all is said and done, earnings per share from continuing operations was $0.42, a healthy 13.5% increase from $0.37 per share in the first quarter of 2015.

Moving forward
Devin Wenig, president and CEO, sounded pleased with the company's performance during the quarter and is also confident of eBay's initiatives to accelerate growth through an improved customer experience. 

In his own words:

Q1 represents another quarter of solid results, as we continue to position eBay for long-term success. ... We are executing our plan and making progress on our strategic priorities to ensure our buyers have the best choice of products and a simple, personalized shopping experience, while sellers benefit from our powerful selling platform.

On the other hand, guidance for both the coming quarter and the full year 2016 is still quite modest. Management expects revenue during the second quarter to be between $2.14 billion and $2.19 billion, representing a constant currency increase of 4% to 6% year over year. For the full year of 2016, the company forecasts revenue to be between $8.6 billion and $8.8 billion, a 3% to 5% increase in constant currency terms versus 2015 levels.

eBay delivered solid profitability during the first quarter, and areas such as StubHub and marketing services are showing promising potential. However, everything indicates that revenue growth will remain in the low to mid-single digits over the coming quarters, as it will take some time for eBay to translate operational improvements into accelerating sales growth.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

eBay Inc. Stock Quote
eBay Inc.
EBAY
$48.82 (5.06%) $2.35

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
344%
 
S&P 500 Returns
120%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.