EBay Earnings Review Q3 2015

  • eBay reported slightly better than expected revenues and EPS results.
  • The company’s GMV declined by a smaller figure than in the previous quarter, which might indicate a potential turnaround.
  • Analysts maintained the Outperform rating and $29.9 price target.
  • In my mind, the lack of a long term growth driver remains eBay's biggest challenge.

The e-commerce giant eBay (NASDAQ:EBAY) reported its Q3 2015 earnings last week with slightly higher results than analysts’ consensus and the company’s guidance for revenues and EPS. This was the first quarter that eBay reported results for its lean structure after the PayPal spin-off and the Enterprise buyout. Expectations for this quarter’s earnings were low, and the market looked for indications that eBay’s core business decline has halted or somewhat slowed down. Reporting in-line results to guidance and consensus caught the market by surprise, and the stock price reacted accordingly, with an 8% surge after hours followed by an additional 2% the day after.

eBay indeed presented a slowdown in core business decline as GMV dropped only 2% YoY compared with a 3% drop in the previous quarter. The sense that a turnaround is near triggered the rally in eBay’s stock. However, the sharp reaction to eBay’s results shifted the focus from eBay’s weak guidance, which was lower than the consensus in both revenues and EPS. The lower guidance presents the business difficulties eBay faces competing with Amazon (NASDAQ:AMZN), Alibaba (NYSE:BABA) and even Walmart (NYSE:WMT). As the competition intensifies in the e-commerce market, it is becoming clear that a pure e-commerce business model is not sustainable for the long run, and eBay needs to generate new revenue streams to compensate for the declining GMV.

The main issue after the recent earnings review remains eBay’s competitive positioning; as Alibaba and Amazon try to decrease their dependency on marketplace revenues, they generate increasing amount of revenues from cloud computing services (AWS and AliCloud), payments (Amazon Payments and AliPay), and other emerging business lines like the hardware in Amazon or Alibaba’s ride-hailing investments. In the long run, a pure e-commerce business could not survive, and eBay would need to invest heavily in new initiatives and businesses to create new revenue streams.

Even though eBay’s stock rallied, I remain bearish on eBay as the company is still very marketplace focused and presents no innovation outside of the marketplace segment. The conference call revolved around eBay’s marketplace strategic plans that include strengthening the eBay brand, improving the platform and implementing data learning capabilities that could be used for advertising on the platform. These are good initiatives, but it should be clear by now that future growth will not come from the core business. I’m positive that eBay’s executives have considered different alternatives, including acquisitions, VC investments, developing new products, etc. However, in my view, as long as these alternatives are not shared with the public, eBay remains an unattractive investment.

Most analysts maintained their ratings and price targets, with a mean forecast outperform rating, setting a $29.9 price target that reflects a modest 6% upside over the next 12 months. As long as eBay is solely focused on delivering a more robust platform with minimum innovation for emerging revenue streams, I can hardly see what will drive the company’s growth.

These are the eBay earnings figures compared to expectations:

Q3’15 Actual Q3’15 Guidance Q3’15 Consensus Q3’14
Revenues $2.1B $2.085 $2.1B $2.156B
Non-GAAP EPS $0.43 $0.39 $0.4 N/A

Source: eBay IR, Thomson Reuters

Conclusion

Ebay reported Q3 2015 earnings for the first time in a slim structure after the PayPal spin-off and Enterprise buyout. The company reported slightly better results than expected, indicating that the GMV decline is slowing down and triggering an 8% hike in stock price. However, the surge in stock price shifted the focus from some of Ebay's strategic issues such as emerging revenue streams, non-core innovation, and clear growth strategy. Most analysts maintained their ratings and price targets, reflecting a 6% upside in eBay’s stock over the next year. With no catalyst in near sight and no growth prospects, I remain bearish on eBay.

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Comments on this article and EBAY stock

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formset
bearish
Aug. 2007: AMZN ~$40 EBAY ~$40 ...
Oct. 2015: AMZN ~$608; PYPL ~$36; EBAY ~$28—LOL ...
Well done; keep up the destruction, Johnny Ho-Ho-Ho ...
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