16 Mar

Is eBay’s Buyback Pot Empty?


Share repurchases to slow in 2017

The share buyback program of e-commerce giant eBay (EBAY) is likely to become more moderate in 2017 as the company has already used a huge proportion of its existing buyback authorization. While the management may announce a new buyback program, the company’s balance sheet is so highly leveraged that the management might want to spend the available cash more prudently while avoiding more debt.

The company exited 2016 with cash and equivalents of $1.8 billion, while its total debt was ~$9.0 billion, and it appears that eBay has been borrowing in order to invest in more growth—especially strengthening its existing operations—to fend off competition from Amazon.com (AMZN), Alibaba (BABA) in the e-commerce space and Yelp (YELP) and Google in the online advertising business.

Is eBay’s Buyback Pot Empty?

What’s left in the buyback pot

Notably, eBay ramped up its stock repurchase in 4Q16, pumping $1.0 billion into the program during the quarter—nearly double its $500 million run rate in previous quarters. The company exited 2016 with $1.3 billion remaining under its current buyback authorization, and it’s on course to exhaust that balance in 2017.

The buybacks have enabled eBay not only to return value to shareholders but also to boost its adjusted EPS (earnings per share). Its EPS of $0.54 in 4Q16 rose from $0.50 one year previously, matching the consensus estimate. The chart above depicts eBay’s adjusted EPS trend over the past five quarters. Meanwhile, eBay is expecting its adjusted EPS to be between $0.46 and $0.48 in 1Q17.

We should note here that eBay’s buyback program did get a boost from the more than $1 billion it generated from the sale of a portion of its stake in MercadoLibre (MELI).

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