eBay Q3 Revenues Shine, Stock Fades Away

It’s been over a week since the ecommerce giant eBay Inc announced Q3 earnings, beating the estimates. But what reflects as a negative investor sentiment is the weak stock performance on the exchanges. Despite the ensuing festive season and progress on the company’s initiatives such as managed payments migration, expansion of its advertising portfolio, and volume growth in focus categories, the management’s modest guidance for Q4 revenues seems to have disappointed the investors. Even as the company’s board of directors has decided to offer a cash dividend of $0.18 per share, there are concerns over the company’s long-term growth prospects following the post-pandemic re-openings and slowing down of online traffic. The tepid outlook may be disappointing for some, but for management it is a well-managed calculated guidance, without any surprises!

FAST FIVE

1. Stocks defy “better-than-expected revenues”

eBay Inc beat the estimates for its third quarter earnings and revenues. Third quarter net revenues rose 11% on year to $ 2.5 billion. Non-GAAP net income from continuing operations was $591 million, or $0.90 per diluted share, up 1% and 9% respectively. The management termed it a “better-than-expected revenue and earnings growth on the high end of guidance.” The stock, which had hit a recent peak of $80.59 on October 22, has corrected by 8.5% so far. In the past five trading sessions alone it lost over 2.5%. But there’s an undercurrent, which indicates that the disappointment isn’t completely out of place. The gross merchandise volume (GMV) fell 10% at $19.5 billion. The number of active buyers fell by 5% from 159 million to 154 million – the fall is for the second quarter in a row. These numbers come in stark contrast to the Chief Executive Officer – Jamie Iannone’s comments that the company’s “strategic playbook continues to work.”

2. Guidance for a charmless festive season!

Fourth quarter being a period of celebration, a guidance of revenue growth of 4-6% in Q4 – much less than 11% reported in the Q3 – gives an indication of a charmless festive season for the company. eBay has projected revenues between $2.57 B and $2.62 B for Q4. The holidays are the period when companies want to showcase higher guidance. Company says, revenue growth is “Partially offset by low teens volume decline driven by prior year lapping dynamics.” Being in a consumer-focused business, the holiday business outlook is the key indicator to spell-out a company’s strength to take on competition. During the earnings call, the CEO stated, “Managed payments are on track to deliver $2 billion in revenue this year. And that transition is on track for completion by year-end. However, we believe our tightness journey is just beginning. This milestone unlocks new opportunities to reduce friction in the marketplace and provide additional financial services.” He admits that the “macro environment remains dynamic and difficult to predict with varied impacts from country to country.”

3. The long-term platform advantage

On the operational front, the company is taking up marketplace changes, which is expected to put it into a better position to deliver sustainable growth. It already faces competition from the established and other popular platforms such as Facebook marketplace. But eBay bets big on its advertising portfolio with the launch of Promoted Listings Advanced and Promoted Listings Express. With a clear long-term vision to grow the core, eBay looks to become the “seller platform of choice”, and gain the trust of the buyers. Company is fast migrating all of its global sellers to a next-gen product experience. In Q3, it processed over 90% of on-platform GMV. There is a good amount of interest coming in for the company’s newly-launched seller refurbished experience for cell phones that standardizes item condition grading, vets sellers and backs purchases with one year warranties, offering buyers more trusted products at great values.

4. An investor push in COVID times

The preference to go online saw a significant uptick during the pandemic time. The growing investor confidence in these online platforms and businesses is evident from the stock price movements. eBay stocks nearly doubled since the pandemic struck in early 2020. From $ 36.07 at the end of December 2019, the stock ended on $73.76 on Monday. Even as we see other online retail-focused stocks getting plateaued, eBay has shown a sustained upside trajectory promising for better future returns. “We’ll be stronger coming out of the pandemic than we were going in,” the Chief Executive Officer Jamie Iannone had said in a press interview early in 2021.

5. Reimagination of eBay!

For eBay, it isn’t the same scenario any more. The company, which has its buyers very active during the holiday seasons, now prefers to keep its holiday quarter revenue guidance nearly half of what it was in the preceding quarter. This speaks for the challenging times the company is headed into. In the US one in 10 online shoppers bought something on eBay, while in Germany this number was one in seven and in the UK, it was one in four. This was enough for the analysts to believe that eBay would sustain its gains witnessed during the COVID-19 times and provide strong support to the company’s 2021 performance. Notably, over the past three quarters there is a downward trend in all key parameters, be it – active buyers, GMV or Earnings per share. CEO Iannone had stated that a tech-led reimagination of eBay would be key to eBay becoming “the best global marketplace.” Simplification of listing flow for sellers on its platform, an easier registration and onboarding process for small businesses and real-time competitive pricing are some of the aspects eBay looks to leverage as it builds its future growth.

Summary:

The year started with the resumption of the past year’s upward trajectory in revenues, active buyers and GMV. But from the second quarter onward, the downside started leading up and into the last quarter, when the company expects a slower growth in the revenues, despite the holiday season. eBay, however, is seen managing to sustain its growth momentum amidst stiff competition coming from other ecommerce platforms such as Amazon, Walmart and the newly emerged Facebook marketplace.