- eBay Q4 2015 earnings were largely in-line with Wall street estimates. However, the strong dollar negatively impacted eBay’s business.
- StubHub growth was a bright spot in eBay's latest quarterly update.
- However, the company's Q1 2016 guidance didn't inspire much confidence on Wall Street.
Online auction house and retailer eBay (NASDAQ:EBAY) released its Q4 2015 earnings on January 27. The company reported Non-GAAP EPS of $0.50 per share, which was in line with analysts’ expectations and represents a 9.1% YoY decline. eBay faced some negative issues in the final quarter of 2015 and issued guidance that didn’t do down well with Wall Street. At the same time, not everything was negative for the company.
Currency muddied the waters
The strong dollar masked eBay’s results to a degree. Factoring out currency issues, the company fared much better. eBay’s reported Q4 2015 revenue came in at $2.3 billion, which is roughly equal to the same time last year. However, on a currency neutral basis eBay’s quarterly revenue actually registered a 5% YoY growth. Management also partially blamed the decline in EPS on the strong dollar. Interestingly in eBay’s earnings call, management cautioned that the strong dollar represents a transactional issue. Consumers overseas may not want to purchase eBay items denominated in dollars as the strong dollar makes those items more expensive relative to their local currency.
GMV is up
On a positive note, quarterly Gross Merchandise Volume (GMV), which measures the total dollar amount sold on eBay’s websites, increased 5% YoY on a currency neutral basis. This gives indication that eBay’s brand is alive and well in the minds of its global user base. Businesses and individuals alike still think of the company when they want to list something for sale. The company’s active buyer base came in at 162 million people in Q4 2015, representing a 5% YoY increase.
Healthy growth at StubHub
Keeping customers happy, as well as the willingness of consumers to spend money on concerts, sporting events and movies such as Walt Disney (NYSE:DIS) Star Wars: The Force Awakens, served as a catalyst for robust growth at StubHub, eBay’s ticket business. StubHub’s revenue came in at $232 million in Q4 2015, representing an impressive 33% YoY growth. StubHub’s GMV expanded 30% YoY. In Q4 2015, StubHub’s revenue represented 10% of eBay’s reported revenue versus 7% in Q4 2014. It’s possible that this may become more and more of eBay’s bread and butter segment in the coming years as it serves as a differentiator from competitors such as Amazon (NASDAQ:AMZN).
Wall Street unhappy with eBay Q1 2016 guidance
Following the earnings release, eBay’s stock declined roughly 12% in after-hours trading. The company issued guidance for Q1 2016 that fell short of expectations. On the revenue front, the upper end of eBay’s guidance of $2.1 billion was off by about 2%. Analysts estimates put eBay Q1 2016 revenue at $2.15 billion, according to a survey by FactSet. The upper end of eBay’s guidance on adjusted earnings per share came in at $0.45, which fell 6% short of 48 cents that analysts were expecting.
Overall, long-term investors should be happy with eBay. The company still generates cash, which is what a business owner wants. In Q4 2015, the company’s free cash flow came in at $997 million, which represents a 56% YoY growth due to prudent use of capital expenditures during the quarter. Moreover, eBay stock trades at a P/E ratio of 11 versus 19 for the S&P 500, according to Morningstar. As I said in the eBay earnings preview, StubHub shows promise as long as it can keep customers happy. Investors should consider allocating a small amount of money to the eBay stock.