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eBay Stock Fell, Holiday Quarter Sales Missed Estimates

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eBay (EBAY) stock fell more than 3% in extended trading on Wednesday after its third-quarter results. The stock fell even though the company beat analysts’ earnings and revenue estimates in the third quarter. Notably, investors were disappointed after the company lowered its fourth-quarter guidance. The stock has fallen 6.89% in the pre-market session today.

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eBay’s stock price movement

The stock closed 0.67% higher on Wednesday and ended the trading day at $39.20. At the closing price, eBay’s market capitalization was about $32.9 billion. The stock is trading 6.7% below its 52-week high of $42.00 and about 50.7% above its 52-week low of $26.01.

eBay stock has gained 40.2% YTD (year-to-date) as of Wednesday. The company’s returns have been higher than Twitter (TWTR), Amazon (AMZN), and Alphabet’s (GOOGL) returns this year. Twitter, Amazon, and Alphabet shares have risen 35.1%, 17.3%, and 20.4%, respectively, YTD. Facebook (FB) and Snap (SNAP) have gained 42% and 139.2%, respectively, this year. In contrast, Yelp (YELP) shares have fallen 4.17%.

Upbeat earnings and revenues

eBay posted adjusted earnings of $0.67 in the third quarter. The company’s earnings were higher than analysts’ estimates of $0.64 and its guided range of $0.62–$0.65. The earnings also increased 19% YoY (year-over-year) due to higher margins and share buybacks. eBay’s adjusted operating margin expanded by 20 basis points to 26.6% in the third quarter.

The company repurchased approximately $1.0 billion worth of shares in the third quarter. Share buybacks lowered the share count, which boosted eBay’s earnings. The company also paid dividends worth $115 million in the quarter.

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eBay posted revenues of $2.65 billion, which beat analysts’ estimates of $2.64 billion. The company’s third-quarter revenues were within its guided range of $2.61 billion–$2.66 billion. Notably, eBay’s YoY revenue growth rate improved marginally in the second quarter. The company reported sluggish growth for the past several quarters. However, the revenues were flat in the third quarter compared to the same quarter the previous year. On a constant-currency basis, the company’s revenues rose 2% YoY—down from 4% growth in the previous quarter.

eBay’s Marketplace revenues fell 1% YoY, while its Classifieds revenues grew 4% YoY in the quarter. StubHub revenues rose 5% YoY in the third quarter. Excluding currency, the company’s Marketplace, Classifieds, and StubHub revenues rose 1%, 8%, and 5%, respectively.

Active buyers and gross merchandise volumes

eBay’s revenues are driven by its growth in active buyers. However, the revenues were pulled down by a decline in the GMV (gross merchandise volume). In the third quarter, the total number of global active buyers reached 183 million. The active buyers grew from 182 million buyers in the second quarter and 177 million buyers in the third quarter last year.

Meanwhile, the GMV fell 4% YoY in the third quarter. On a constant currency basis, the GMV fell 2% YoY. The GMV is the value of goods sold, which are on the website during a particular period.

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eBay works to grow its business

During the earnings call, eBay’s CEO stated that the company completed its operating review. eBay will drive margins through a multiyear operating efficiency plan. Improved margins, reinvestment, and operational efficiencies will likely boost the operating margin by 3 points by 2022. The company could use the resources to reinvest in critical customer initiatives.

The company wants to sell its StubHub and Classifieds businesses due to pressure from activist investors. Starboard Value and Elliott Management, two eBay stakeholders, have been considering selling eBay’s non-core businesses. However, the move didn’t convince eBay CEO Devin Wenig. As a result, he decided to resign last month.

eBay stock fell due to disappointing guidance

For the fourth quarter, eBay expects its adjusted EPS to grow to $0.73–$0.76.

Meanwhile, analysts expect an EPS of $0.76 in the fourth quarter. eBay expects fourth-quarter revenues of $2.77 billion–$2.82 billion. However, the company’s revenue guidance was lower than analysts’ expectations of $2.82 billion. The company’s lower-than-expected fourth-quarter revenues came as the company struggles to compete with e-commerce heavyweights like Amazon and Walmart. eBay might lag its peers during the upcoming holiday season. Notably, the holiday season drives most of the company’s revenues.

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For 2019, eBay raised its earnings outlook amid efforts to drive margins and boost its business. The company has raised its profit guidance for three consecutive quarters. Now, the company expects an adjusted EPS of $2.75–$2.78 for 2019. Earlier, the company expected an EPS of $2.70–$2.75. Analysts expect the EPS to grow 18.9% YoY to $2.76 per share, which is within the company’s guided range in 2019. Analysts expect the earnings growth rate to fall to 8.9% in 2020.

However, eBay narrowed its revenue outlook for 2019. The company reduced the higher end of the previous guidance range. eBay expects its revenues to grow to $10.75 billion–$10.80 billion compared to the earlier forecast of $10.75 billion–$10.83 billion. Analysts expect fiscal revenues of $10.8 billion—up by 0.5% YoY. Meanwhile, analysts expect the revenues to grow 3.4% YoY in 2020.

Analysts’ ratings

Among the 35 analysts covering eBay stock, 11 have a “buy” rating on the stock—down from 13 the previous month. Meanwhile, 22 analysts have a “hold” rating on eBay stock—up from 20 last month. Only two analysts have a “sell” rating on the stock—unchanged from last month.

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