EBay Earnings Preview Q3 2015

  • eBay earnings are expected to be announced next week (October 21).
  • Focus is on the core business progress post the PayPal spin-off.
  • Investors are looking for an indication that growth decline is slowing down.
  • Without a clear indication for an expected turnaround, eBay’s stock will continue to drop.

E-commerce giant eBay (NASDAQ:EBAY) is expected to report its Q3 '15 earnings results next week in its lean structure after the company spun off its payments subsidiary, Paypal Holdings (NASDAQ:PYPL), and sold its enterprise business line to private equity firms Permira and Sterling Partners.

eBay's earnings release in the previous quarter took place only one day before the company officially completed the PayPal spin-off, and this enabled investors to view the exact impact on eBay’s financials after it carved out it enterprise business and PayPal. As shown in Chart 1 below, eBay’s marketplace revenues have been decaying for years, with the quarterly revenue year-over-year growth rate dropping every quarter and reaching a -3% level in its Q2 '15 earnings. eBay’s guidance for its Q3 ’15 revenues is equal to analysts’ consensus of $2.1B and indicate that the -3% YoY growth will also remain in Q3 ’15.

EBAY_chart 1_101515

That decline in eBay's core business was the primary driver behind shareholder pressure, led by Carl Icahn, to spin off eBay’s successful payment division, PayPal, and unlock its real value. For years, investors invested in eBay solely for the PayPal exposure, and the spin-off was supposed to unleash PayPal from eBay’s weights and allow it to excel on its own. As PayPal will report at the end of the month, eBay's earnings report could shed some light on how successful the separation from PayPal has been after one quarter, for one of the parties in the previous company.

Delving deeper into eBay’s Q2’15 marketplace operating metric unveils a consistent decline in eBay’s gross merchandise volume, both in the U.S. and internationally, as shown in chart 2 below.

EBAY_chart 2_101515

This fall in the year-over-year growth is likely to continue as competition in the e-commerce market intensifies when Amazon (NASDAQ:AMZN) and Alibaba (NYSE:BABA) face the same problems on top of their troubles. eBay recently shut down some of its failing activities, such as same-day delivery service, local merchants’ deliveries, and some of its satellite apps: Motors, Fashion, and Valet. Even though eBay’s competitors also face difficulties in their marketplace operations, the main difference between the cases is that eBay has no emerging businesses to drive its growth further after the PayPal spin-off and Enterprise buyout.

Since the last earnings release (and the PayPal spin-off), Ebay's stock price has lost 16% of its value, compared to 13% that PayPal’s stock lost and 6% that the S&P dropped as shown in the chart below.

EBAY_chart 3_101515

To change the downtrend of its stock price and revenues, Ebay needs to slow down the GMV decrease to indicate that the company is on the verge of a turnaround. Without a positive indication in that direction, Ebay’s stock will continue the rapid, and sharp sell-off, which was three times worse than the market’s correction.

These are the comparable figures to watch in this earnings:

Q315 Guidance Q3’15 Consensus Q314
Revenues $2.085 $2.1B $2.156B
Non-GAAP EPS $0.39 $0.4 N/A

Source: eBay IR, Yahoo Finance, WSJ


After a rough patch, Ebay will report for the first time as a lean e-commerce company since the PayPal spin-off and the Enterprise buyout. The company’s growth in revenues and GMV drops every quarter, and without a real indication for a turnaround or new emerging revenue streams, it’s hard to see how Ebay could resurrect.

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