It has been about a month since the last earnings report for eBay (EBAY). Shares have lost nearly a double digit percentage value in the past month, easily underperforming major benchmarks in that time frame.
Will the recent negative trend continue leading up to their next earnings release, or is the stock due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
eBay's Q2 Earnings and Revenues Beat Estimates
eBay Inc. reported second-quarter 2016 earnings of 36 cents per share, matching the Zacks Consensus Estimate of 36 cents. Adjusted earnings per share exclude one-time items but include stock-based compensation expense.
Management sounded upbeat and mentioned several initiatives including the collection of data from sellers, application of artificial intelligence for a better user experience, increased use of social media to drive traffic, and focus on discovery-based user experience to name a few.
eBay seeks to attract more customers to its online properties, engage them and thus generate revenues. Therefore, the best way to understand the business is through its revenue/volume growth, customer growth, revenue per customer and cash flow.
Gross revenue of $2.23 billion was up 5.7% on a year-over-year basis (up 7% on an Fx-neutral basis).
In the second quarter, the Marketplace platforms contributed $19.8 billion of GMV and $1.8 billion of revenue. On the other hand, StubHub also showed signs of accelerated growth with contribution of $ 1.1 billion of GMV, up 35% on a year over year basis and revenue of $0.2 billion up 40% on a year over year basis.
Gross Merchandise Volume (GMV) grew 6% year over year on an Fx-neutral basis. Active buyers/customers totaled 164 million, flat sequentially but up 6% from the year-ago quarter. By geography, the U.S. generated $8.5 billion of GMV, up 5%, accelerating two points versus Q1. The acceleration was driven equally by Marketplace and StubHub. International delivered $12.3 billion of GMV, up 6% year-over-year.
Pro-forma gross margin for the quarter was 78.1%, down 164 basis points (bps) year over year but up 21 bps sequentially.
Cost of revenue increased 160 basis points on a year-over-year basis that was driven primarily by the addition of PayPal processing costs and the impact of foreign exchange.
Adjusted operating expenses of $1.21 billion increased 7.4% from the prior–year quarter and 16.7% sequentially. Operating margin shrank 249 bps year over year and 552 bps sequentially to 23.7%.
Excluding the impact of intangibles amortization and other items on a tax-adjusted basis, pro-forma net income came in at $411 million compared with $396 million in the year-ago period. Including the special items, GAAP net income was $437 million (38 cents per share) compared with $430 million (35 cents per share) in the year ago quarter.
For the third quarter of 2016, eBay expects revenues to grow 6%–7% on an Fx-neutral basis to $2.16 billion – $2.19 billion. Non-GAAP earnings are expected within 42 cents–44 cents. GAAP earnings per share from continuing operations are expected in the range of 35 cents–37 cents.
In 2016, eBay expects revenues to grow 5 on an Fx-neutral basis to $8.85 billion – $8.95 billion.
How have estimates been moving since then?
Following the release and in the last month, investors have witnessed an upward trend for fresh estimates. There have been three revisions higher for the current quarter compared to zero lower in the past thirty days. However, this has done little to move the consensus estimate, as we can see in the chart below:
At this time, eBay's stock has a subpar Growth score of 'D', a grade with the same score on the momentum front. However, the stock was allocated a grade of 'B' on the value side, putting it in the second quintile for this investment strategy. This solid grade on the value front does little for EBAY's overall picture though, as the company currently retains a 'D' Grade for its VGM score, making it a poor overall choice from a fundamental look.
While estimates have been trending upward for the stock, the magnitude of these revisions has been almost zero. Interestingly shares of EBAY have a Zacks Rank # 3 (hold), so we are looking for an in-line return from EBAY in the next few months and no real upside for investors right now.
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