EBay Earnings Review: Q4 2014

  • eBay earnings for Q4 were mostly in-line with estimates, EPS of 90 cents on revenue of $4.92 billion.
  • eBay-PayPal spin off is on track and will leave PayPal with $5 billion cash to finance its rapidly growing operations.
  • Icahn capital executive Jonathan Christodoro was appointed to the board of eBay, a big win for Carl Icahn.

eBay (NASDAQ:EBAY) reported its Q4 2014 earnings after the market close yesterday (January 21). The company beat the street earnings estimate by a cent. eBay stock price gained 3.5% in after-hours trade following the Q4 conference call. However, the company once again guided below estimates for Q1 2015 as well as FY 2015. Amigobulls eBay stock analysis looks into eBay post the latest quarterly numbers.

eBay Earnings - Q4 2014 Summary

eBay earnings came ahead of analyst estimates for the quarter, delivering an earnings surprise of 1 cent per share. eBay reported a 9% YoY growth in revenue, which was marginally lower than analyst estimates. The earnings of 90 cents per share were 11% higher than that for the year ago quarter.

Analyst estimates Actual Beat % YoY growth
Revenue 4921 4931 -0.2% 8.60%
EPS 0.9 0.89 1.1% 11.1%

The topline growth was driven by 18% growth in Payments segment, which contributed 44% of eBay revenue in Q4. The enterprise segment registered YoY growth of 9% while the marketplaces segment registered a 1% YoY growth and 5% YoY forex adjusted growth.

Other major highlights from the eBay earnings release.

  • Appointment of Jonathan Christodoro, an Icahn capital executive to the board of eBay, along with two other directors. Icahn will have the right to decide whether Christodoro serves on eBay or PayPal's board after the spinoff.
  • The company will also be laying off around 2400 employees (7% of eBay workforce) in Q1 across the three business segments of marketplaces, enterprise and payments.
  • Following confirmation of the PayPal spin-off, the eBay management is exploring strategic options to sell off the enterprise unit in the year 2015. It could be a complete or partial sale or an IPO for the enterprise segment.

eBay Profit Margins

Q4 2013 Q4 2014 YoY change
Operating profit margin 22.60% 21.60% -1.00%
Net Income margin 18.76% 19.02% 0.26%
Non GAAP operating margin 29.20% 27.70% 0.26%
Non-GAAP Net margin 23.55% 22.64% 0.26%

The GAAP operating profit margin declined by 100 bps over Q4 2013 while Net Income margin registered a 26 bps increase over the year ago quarter. The operating margin contraction was driven by accelerated growth in sales and marketing expenses (12.9% YoY) as well as product development expenses (13.1%) in comparison to revenue growth.

eBay cost analysis Q4 2014
Source: eBay earnings presentation

eBay Operating Metrics

The other operating metrics for the three segments are summarized below.

in billions of $ Q4 2013 Q4 2014 YoY growth FX adjusted growth
Total payment volume (TPV) 51.97 64.3 23.7% 27%
On eBay TPV 15.31 15.70 2.6% 5%
Merchant services TPV 36.66 48.59 32.5% 36%
Gross merchandise Value 21.50 21.85 1.6% 5%
Gross Merchandise sales 1.77 1.93 8.8% 12%

Source: eBay earnings presentation

Total payments volume (TPV) accelerated by 27% YoY in Q4 2014 driven by a 25% growth in number of payments processed. On-eBay TPV constituted 24.4% of total payments volume. Merchant services TPV, constituting 76% of TPV, was also the faster growing segment with YoY growth of 36%.

Gross merchandise volume through eBay marketplaces registered a 2% YoY growth, negatively impacted by lower ASP of orders, increased free shipping of orders traffic growth deceleration in comparison to Q4 2013.

eBay Earnings Summary For FY 2014

eBay registered a 24% growth in enabled commerce volume, up from 22% growth in 2013. eBay revenue grew 12% in 2014 leading to a 9% YoY growth in eBay earnings per share (Non-GAAP). The company also reduced its outstanding shares by 5%, spending $4.7 billion in buybacks through the year while generating $4.4 billion in free cash flow.

eBay Guidance

The management guided to eBay Q1 2015 earnings (Non-GAAP) of 68 cents to 71 cents on revenue of $4.35 - $4.45 billion, which was lower than the analyst consensus of 76 cents earnings on $4.7 billion revenue. The full year guidance was also lower than the analyst estimate. The management projected FY 2015 Non-GAAP EPS range of $3.05-$3.15 on revenue of $18.6-$19.1 billion, significantly lower than analyst estimates of $3.26 EPS on $19.97 billion revenue.

eBay PayPal spin-off

The management also provided more context on the previously announced separation of eBay and PayPal. The company expects to make a Form 10 filing by the end of February and complete the spin off in the second half of FY 2015. As we had noted in an earlier post, eBay PayPal spin-off would maximize shareholder value if agreements were put in place to preserve the current synergies. In-line with our thinking, eBay PayPal spin-off will be accompanied by strategic agreements to preserve synergies and minimize dis-synergies.

The timing of the spin-off is also perfect as the on-eBay TPV has slowed down through 2014 while the merchant services TPV has continued to accelerate. The spin-off could further drive merchant services TPV as an independent PayPal could attract more merchants, who are direct competitors to eBay and could have stayed away from PayPal due to its parental chord with eBay.

The spin-off also aims to leave with PayPal with $5 billion of the $7 billion cash from eBay Inc. This makes perfect sense as PayPal, a lower margin business, will need a larger cash pool to fund its rapid growth. On the other hand, eBay (marketplaces), is a higher EBITDA and cash flow business, and will therefore be able to generate enough cash flows to support its growth over the coming years.


eBay earnings report for Q4 was in-line with analyst estimates on most major metrics. Even though the company missed revenue estimates, the ebay stock has gained following the eBay earnings release. The markets seem to be cheering the news of PayPal spin-off being on track and a potential IPO or sale option for the Enterprise segment. The PayPal spin-off and sale of enterprise segment will also help eBay overcome the corporate discount, which could be impacting the current eBay valuation.

Do let us know your thoughts on the latest earnings report of eBay in the comments section below.

eBay Earnings Preview Q4 2014

eBay will announce its Q4 2014 earnings on January 21, 2015 after stock market close. The eBay earnings report will be for the fiscal quarter ending December 2014.

After the announcement of a spin-off of PayPal as a separate company by the end of 2015, eBay's Q3 earnings announcement was insignificant with the firm missing out on revenue expectations and exceeding eBay earnings estimate by a penny. The eBay stock fell by 4% in after hours trade. PayPal continued to do well, reporting 21% YoY growth in revenue while eBay's marketplace saw only 5% YoY growth in revenue. The planned separation of eBay and PayPal comes at a time when the market has become highly competitive with biggies like Apple introducing its own payment service. Though the Payment segment has performed well growing payments volume by 29%, margins haven't been able to hold up. As for the marketplace segment, even though the growth has reduced, this segment still continues to deliver attractive margins. Going forward, the topmost thing on investors minds would be the separation of eBay-PayPal and which of the two companies will emerge stronger. With a consensus forecast of $0.78 for eBay EPS, lets wait to see what eBay earnings Q4 2014 has in store. While PayPal shows promise, eBay still has upside potential left.

ebay eps chart
Source: eBay stock chart by Amigobulls

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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