eBay (EBAY) stock was up by more than 5% on Thursday after it delivered its second-quarter earnings results on Wednesday. The stock was also up almost 6% in extended trading on Wednesday. The Internet company delivered earnings and revenue that crushed Wall Street estimates in the quarter. It also raised its profit forecast for the year. The company is also considering selling its StubHub and Classifieds businesses.

eBay stock was up 39.5% YTD (year-to-date) on Wednesday, almost double the S&P 500’s rise of 19.0% YTD.

eBay Raises Profit Forecast, Considers Selling StubHub

Earnings drivers

eBay posted adjusted EPS of $0.68 in the second quarter. Its earnings were higher than analysts’ expectation of $0.62 and its guided range of $0.61–$0.63. Its earnings also increased 28.3% YoY (year-over-year) driven by top line growth, improved margins, and share buybacks.

eBay’s adjusted operating margin expanded 170 basis points to 26.9% in the second quarter. Its margin expanded as its adjusted operating expenses of $1.41 billion fell 9.3% YoY in the quarter. As a percentage of sales, its sales, marketing, and product development expenses and its general and administrative costs decreased in the quarter.

Top line growth

eBay’s revenue rose nearly 2% YoY to $2.69 billion in the quarter. Its YoY revenue growth rate improved after slowing for the past several quarters. Its revenue also topped analysts’ estimate of $2.68 billion and touched the higher end of its guided range of $2.64 billion–$2.69 billion. On a constant-currency basis, its revenue rose 4% YoY. Its top line growth was driven by a 4% rise in active buyers. Its total number of global active buyers reached 182 million.

eBay’s Marketplace and Classifieds revenues rose 1% YoY and 5% YoY, respectively, in the quarter. On the other hand, its StubHub revenue rose 7% YoY. On a constant-currency basis, its Marketplace, Classifieds, and StubHub revenues rose 3%, 12%, and 7%, respectively.

eBay’s gross merchandise volumes fell 4% YoY to $22.6 billion and were flat excluding currency. Gross merchandise volumes indicate the value of goods sold updated on the website at a specific time.

eBay Raises Profit Forecast, Considers Selling StubHub

eBay’s efforts to grow its business

eBay is making efforts to make its platforms user-friendly to attract more customers and better compete with its rivals. eBay competes with Amazon and Walmart, which dominate the e-commerce industry. The company has also been emphasizing its emerging businesses, including new ad sales and an easier-to-use payment process, to attract shoppers.

eBay has added new payment methods such as Google Pay to attract more users. It’s also accelerated its new payment program and involved over 6,000 sellers in the program.

The e-commerce company has also agreed on a commercial deal with Paytm Mall to bring its global inventory to one of the largest marketplaces in India. It’s also reached an agreement to sell its flash sale German business, brands4friends.

Review of eBay’s StubHub and Classifieds businesses

The company is also in the process of reviewing and selling its StubHub and Classifieds businesses. It decided to review the businesses in March following pressure from activist investors. Starboard Value and Elliott Management, two stakeholders in eBay, have been considering selling eBay’s noncore businesses.

The investors believe that the sale will help the company better attract shoppers. They also expect that the sale will improve the company’s operational efficiency and will help it return more capital to stockholders.

eBay’s cash flows and balance sheet

eBay’s cash and cash equivalents totaled $1.51 billion at the end of June. Its operating cash flow was $744 million, and its free cash flow was $607 million. Its capex was $182 million. The company’s long-term debt was $7.2 billion at the end of the second quarter.

The company repurchased $1.5 billion worth of shares during the quarter. Its remaining share repurchase authorization was $4.2 billion at the end of June. eBay also paid $120 million in dividends in the quarter. Its quarterly cash dividend of $0.14 per share will be payable on September 20 to shareholders of record as of September 3.

eBay’s guidance

For the third quarter, eBay expects adjusted EPS in the range of $0.62–$0.65 and revenue in the range of $2.61 billion–$2.66 billion. Analysts expect EPS of $0.64 and revenue of $2.65 billion for it in the third quarter.

For 2019, eBay has raised its profit forecast driven by its efforts to boost its business. The company has increased its profit guidance for the second time this year. It now expects adjusted EPS in the range of $2.70–$2.75. Earlier, it had forecast EPS in the range of $2.64–$2.70.

However, eBay has lowered its revenue outlook for 2019. It now expects revenue in the range of $10.75 billion–$10.83 billion. Previously, it had expected revenue in the range of $10.83 billion–$10.93 billion for the year.

Analysts’ ratings and valuation

Wall Street analysts expect EPS growth of approximately 18.1% and 13.1%, respectively, for eBay in 2019 and 2020, resulting in EPS of $2.74 and $3.10. Moreover, eBay’s revenues are expected to rise about 0.97% and 4.84%, respectively, in 2019 and 2020.

Soon after eBay released its second-quarter numbers, many analysts raised their price targets on its stock. The changes were as follows:

  • Cowen and Company raised its target to $36 from $34.
  • D.A. Davidson raised its target to $47 from $44.
  • Stifel raised its target to $42 from $41.
  • Raymond James raised its target to $45 from $44.
  • JPMorgan Chase raised its target to $42 from $39.
  • Citigroup raised its target to $48 from $40.
  • Piper Jaffray raised its target to $38 from $35.
  • Credit Suisse raised its target to $49 from $43.
  • Mizuho raised its target to $36 from $34.
  • Jefferies raised its target to $39 from $36.
  • RBC raised its target to $38 from $34.
  • Benchmark raised its target to $50 from $45.
  • Canaccord Genuity raised its target to $40 from $38.

Of the 36 analysts covering eBay, 15 have given the stock “buys,” while 19 have given it “holds.” Two analysts have recommended “sells” on the stock. Analysts have a target price of $42.10 on EBAY, which implies a premium of 7.9% based on its closing price of $39.03 on Wednesday.

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