eBay (EBAY) Q3 Earnings Beat Estimates, Revenues Rise Y/Y

eBay Inc. EBAY reported third-quarter 2020 non-GAAP earnings of 85 cents per share, beating the Zacks Consensus Estimate by 11.8%. The bottom line also improved 64% year over yearbut declined 21.3% sequentially.

Net revenues of $2.61 billion surpassed the Zacks Consensus Estimate by 5%. Further, the figure increased 25% from the year-ago quarter on both reported and FX-neutral basis. However, the figure decreased 9% sequentially.

Year-over-year growth in the top line was primarily driven by solid momentum across the Marketplace platform. Further, accelerating gross merchandise volume (GMV) of the company contributed significantly to the performance.

Further, the growing adoption of the company’s managed payments remained a major positive. The number of sellers migrated to managed payments reached 340,000 in the reported quarter. Further, managed payments offering, which has processed 20% of on-platform volumes,was a major positive.

Further, eBay’s Promoted Listings delivered robust performance by generating revenues of $186 million in the third quarter, which grew 79% on a reported basis and 77% on a FX-neutral basis from the prior-year quarter. This can be attributed to the growing momentum across sellers on the back of data-driven recommendations, which are aiding ad conversions.

Additionally, the company witnessed year-over-year growth of 5% in the active buyer base, which stood at 183 million at the end of the third quarter. Notably, strong momentum across new and reactivated customers was a tailwind.

However, sluggishness in marketing services remained a concern.

Coming to the price performance, eBay has returned 47.4% in the year-to-date period, underperforming the industry’s growth of 61.2%.

Further, shares of the company plunged 4.2% in the pre-market trading. This can be primarily attributed to the lower-than-expected guidance for fourth-quarter and 2020.

Nevertheless, the company’s growing initiatives toward strengthening managed payment offerings remain major positives. Further, eBay remains optimistic regarding growth initiatives, which are based on enhancing the seller experience by offering innovative seller tools and delivering a better buyer experience by utilizing structured data.

Also, e-commerce boom, owing to shelter-in-place protocol on account ofthe coronavirus outbreak, busy holiday shopping season and positive impacts of government stimulus programs are likely to act as tailwinds in the fourth quarter.

Additionally, strength across the Marketplace platform, courtesy of expanding buyer base and increasing traffic, is a positive.

Further, eBay, which entered a definitive agreement to sell Classifieds to Adevinta, has now declared the businessas discontinued operations and is progressing well to complete the ongoing transfer by first-quarter 2021.This is likely to aid the company’s focus toward strengthening its Marketplace business further.

GMV Details

The company’s total GMV of $25.05 billion in the third quarter exhibited year-over-year growth of 22% and 21% on reported and FX-neutral basis, respectively. Further, the figure surpassed the Zacks Consensus Estimate of $24.61 billion.

Notably, eBay’s GMV is entirely generated by the Marketplace platform after the sale of StubHub. Marketplace GMV is categorized into two parts:

U.S. GMV totaled $9.8 billion, which accounted for 39.1% of total GMV, up 33% from the year-ago quarter.

International GMV was $15.3 billion, which accounted for 60.9% of total GMV, grew 16% on a year-over-year basis.

Revenues in Detail

eBay’s revenues are classified into two types:

Net Transaction: The company reported net transaction revenues of $2.36 billion in the reported quarter, accounting for 90.4% of the total revenues. Further, the figure was up 29% from the year-ago quarter. Notably, net transaction revenues are completely generated by the Marketplace platform. Strength across payments and advertising was a positive.

Marketing Services and Other: eBay generated $251 million of total marketing services and other revenues (9.6% of total revenues), which was down 1% from the year-ago quarter.

eBay Inc. Price, Consensus and EPS Surprise

eBay Inc. price-consensus-eps-surprise-chart | eBay Inc. Quote

Operating Details

In the third quarter, eBay’s gross margin was 74.8%, expanding 20 basis points (bps) year over year.

Operating expenses of $1.3 billion contracted 610 bps as a percentage of net revenues from the year-ago quarter.

Non-GAAP operating margin was 30.7% in the third quarter, expanding 400 bps year over year.

Balance Sheet & Cash Flow

As of Sep 30, 2020, cash equivalents and short-term investments were $3.7 billion, down from $5.3 billion as ofJun 30, 2020.

Further, eBay’s balance sheet is highly leveraged with long-term debt of $7.7 billion at the end of the reported quarter compared with $8.2 billion at the end of the last reported quarter.

The company generated $105 million of cash from operating activities during the third quarter, significantly down from $964 million in the previous quarter. This was due to $611 million of cash used in discontinued operating activities, which was absent in the second quarter.

The company’s free cash flow stood at$584million during the reported quarter.

Further, it repurchased $700 million worth of 18 million shares and paid dividends of $111 million in the third quarter.

Guidance

For fourth-quarter 2020, eBay expects net revenues of $2.64-$2.71 billion. The Zacks Consensus Estimate for the same is pegged at $2.76 billion.

Non-GAAP earnings are anticipated to be 78-84 cents. Notably, the Zacks Consensus Estimate for the same is pegged at 87 cents per share.

For 2020, the company raised guidance for net revenues from $9.59-$9.78 billion (previously mentioned range, excluding the impact of Classifieds) to $10.04-$10.11 billion. The corresponding Zacks Consensus Estimate is pegged at $10.45 billion.

The guidance for non-GAAP earnings per share has also been revised upward from $3.04-$3.16 (excluding Classifieds impacts) to $3.34-$3.40. The Zacks Consensus Estimate for the metric stands at $3.55 per share.

Zacks Rank & Stocks to Consider

Currently, eBay carries a Zacks Rank #5 (Strong Sell).

Alibaba Group Holding Limited BABA, JD.com, Inc. JD and Revolve Group, Inc. RVLV are some better-ranked stocks in the broader Retail-Wholesale sector, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Long-term earnings growth rate for Alibaba, JD.com and Revolve is pegged at 19.76%, 49.73% and 17.3%, respectively.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by referendums and legislation, this industry is expected to blast from an already robust $17.7 billion in 2019 to a staggering $73.6 billion by 2027. Early investors stand to make a killing, but you have to be ready to act and know just where to look.

See the pot stocks we're targeting >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
eBay Inc. (EBAY) : Free Stock Analysis Report
 
JD.com, Inc. (JD) : Free Stock Analysis Report
 
Alibaba Group Holding Limited (BABA) : Free Stock Analysis Report
 
Revolve Group, Inc. (RVLV) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.