EBay Q1 2014: Business As Usual!

  • eBay beat revenue and EPS estimates to register yet another decent quarter.
  • Net profit margins were down due to the cash repatriation tax charge of $3 billion.
  • eBay is a good investment option for those seeking stability and predictability.

ebay q1 2014 business as usual

Investors received EBay’s (NASDAQ:EBAY) latest earnings release by pushing its stock price 5% lower. The company’s announcement to take a $3 billion cash repatriation tax hit triggered the reaction, even as investors overlooked an otherwise decent performance. Barring the tax surprise, EBay’s business continued chugging along nicely.

In line with our expectations in our Q1 earnings preview, EBay beat revenue and EPS estimates while maintaining its full year guidance.

eBay Q1 2014: Estimates vs Actuals

EBay registered a revenue of $4.26 billion, marginally beating estimates of $4.23 billion. The company’s adjusted EPS of $0.7 also surpassed estimates of $0.67 a share.

eBay Q1 2014 Key Financials

Ebay’s revenue in Q1 grew at 13.7% Y/Y (over Q1 2013) while slowing by 5.9% sequentially, as is usually the case in its first quarter every year. The company recorded an operating profit margin of 20.6%, incidentally also its average operating margin over the last 3 years.

ebay Revenue and Profit Trend

eBay ended the quarter with cash and short term investments of $7.84 billion, down $1.18 billion from the previous quarter. The company generated cash of $1.17 billion from operations and spent $206 million on cap-ex and $1.8 billion on share buy-backs.

eBay’s international revenue grew faster than its revenue from the US, to account for 53% of total revenue. Driven by PayPal, the company’s business continued to grow at a faster pace when compared with its original ‘marketplaces’ division, which saw a growing international business offset a slowdown in the US. ‘Payments’ grew at 18.5% Y/Y as against the 11% growth in ‘Marketplaces’ revenue.

ebay Segmental Revenue Growth Trend

The slowdown in the auctions business in North America (part of Marketplaces revenue) and its online ticketing platform, StubHub (acquired by eBay), is a concern for eBay. Here's how each of eBay's segments have contributed to its revenue over the last few quarters.

ebay Revenue Break Up

To sum up, eBay continued to deliver stable and predictable results in terms of revenue and profitability, landing up slightly ahead of expectations to close a decent quarter.

eBay’s $3 Billion Tax Charge

eBay’s net profit margins looked rather unfamiliar at -55% on account of the non-cash charge of $3 billion, taken to provide for US taxes that will be payable upon repatriation of eBay’s foreign earnings. $2 billion out of EBay’s 11.2 billion cash and cash equivalents are held in the US. eBay wants to repatriate the balance of $9 billion to ‘take advantage of opportunities that exist here in the US’.

The move is aimed at using the cash to finance its share buy-back program and any potential acquisitions. However, the company clarified that no major acquisitions are expected just yet.

eBay's Q2 and FY 2014 Guidance

eBay’s expects Q2 revenue of $4.32 to $4.42 billion, representing a sequential growth of 2.7% and a Y/Y growth of 12.8%. The company expects to generate GAAP EPS of $0.51 – 0.53 and non-GAAP EPS of $0.67 – 0.69 a share.

EBay’s FY 2014 guidance: Revenue - $18 - 18.5 billion, GAAP EPS: $0.04-0.09 a share, non-GAAP EPS: $2.95 - 3 a share.

Analysts estimate eBay revenue and non-GAAP EPS of $4.4 billion and $0.69 a share respectively for Q2 2014. For the full year, estimates stand at a revenue of $18.28 billion, and non-GAAP EPS of $3 a share.

eBay Company Valuation

After its 5% drop post the Q1 results, eBay currently trades at a Price/Sales multiple of 4 and a Price/Earnings multiple of 18.6. eBay is not one of those fiercely attractive or exciting stocks. But, it’s also not outrageously valued.

eBay, as a company, is stable and predictable. It is growing at a reasonable pace, complemented by steady profit margins. If you are looking at exposure to online retail, eBay is a good investment option.

To see eBay’s latest stock price movement, click here (NASDAQ:EBAY)

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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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Comments on this article and EBAY stock

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neena@amigobulls
bullish
EBay's growth may not be spectacular as compared to AMZN but steady profits and steady growth is what we like about EBAY. This is for investors who are looking for stability.
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