) reported second quarter earnings of 51 cents including
share-based compensation (SBC), which exceeded the Zacks Consensus
by 3 cents. Earnings excluding SBC came in at 70 cents, much better
than the Street. A favorable tax ruling in Korea had a $29 million
positive impact on revenue a 2 cent positive impact on
Continued strength in Payments coupled with a reinvigorated
Marketplaces business drove share prices up 3.6% in after-hours
Gross revenue of $3.40 billion was up 3.7% sequentially and
23.1% year over year, exceeding consensus expectations of $3.36
billion and eBay's guidance range of $.25-3.35 billion.
Over 85% of total revenue was transactions-based, while the
remaining 15% came from marketing services. Seasonality impacted
both transactions-based revenue (up 2.3% sequentially) and
marketing services revenue (up 11.5% sequentially). Growing 22.6%
and 24.7%, respectively from the year-ago quarter, both contributed
to the upside versus guidance.
Revenue by Segment
eBay reports revenue under the Marketplaces and Payments
segments. The Marketplaces segment essentially refers to the
revenue earned from the sale of goods available on eBay properties.
The Payments segment refers to revenues generated through Paypal.
Consequently, both segments derive revenue from transactions, as
well as marketing services.
eBay's core gross merchandise volume (GMV) during the quarter
excluding vehicles volume was flat sequentially and up 10.2% year
over year. The increase from the year-ago quarter was helped by
fashion, parts and accessories, and ticket sales, all of which were
up very strongly.
Additionally, both fixed price (65% of GMV) and auction (34%)
grew in the last quarter. Vehicles GMV also improved, growing 10%
from last year.
eBay's Paypal remains the star performer, generating total
payment volume (TPV) growth of 1.8% and 19.9%, respectively from
the previous and year-ago quarters. TPV on eBay properties was up
18%. Management stated that more than half the revenues were
Management has a three-pronged growth plan here, targeting the
online, mobile and offline segments. Opportunities abound in the
first two areas, while they continue to unfold in the offline
segment as well.
The company's POS solution gained momentum in the last quarter,
with the 15 retailers adopting the technology, following its
The Home Depot
) stores in the first quarter. Of these,
) was the biggest win, since it not only adopted the POS solution,
but also eBay's PayPal Online and PayPal Mobile. Another important
), which added PayPal to the Android version of their mobile
eBay's mobile business touched $4 billion in 2011, having grown
very strongly from $2 billion in 2010. eBay mobile apps have now
been downloaded 90 million times and the company currently expects
total mobile payment volume to increase 150% to $10 billion in
2012. The Paypal Mobile Express Checkout system and the Zong
acquisition are expected to boost mobile payment volumes going
revenue for the quarter was up 5.0% sequentially and 9.1% from the
year-ago quarter. The sequential revenue decline was the net impact
of a 4.6% increase in transaction revenue and a 6.6% increase in
marketing services revenue.
The year-over-year increase was due to a 10.5% increase in
transaction revenue and a 2.9% increase in marketing services
revenue. Active users in Marketplaces were 104.8 million, up 2.4
million during the quarter. Marketplaces generated 54% of total
eBay's top-rated sellers now accounted for more than 50% of GMV
in the U.S., with same store sales growing 18% year over year,
outperforming the market. Around 48% of sellers are offering free
shipping, which is 11 points more than in the year-ago quarter.
Therefore, it is evident that sellers are gaining from coming
to eBay and driving more traffic to eBay properties. Technology
improvements are helping the process.
Payments revenue increased 3.7% sequentially and 26.5% from the
year-ago quarter. Revenue from transactions was up 1.5%
sequentially and 32.3% year over year. The revenue per user
declined sequentially and increased significantly from the year-ago
The revenue per transaction was flat sequentially although down
significantly from last year. The trend indicates that customers
showed a preference for a larger number of lower-value items.
Revenue from marketing services was up 11.5% sequentially and 24.7%
from the year-ago quarter. The Payments segment generated 40% of
- Last year, eBay closed the acquisition of GSI, which brought in
the remaining 7% of revenue, down 6.8% during the quarter. However,
sales grew strongly from last year, with same store sales at GSI
customers increasing 21%.
Revenue by Geography
Around 47% of total revenue was generated in the U.S.,
representing a sequential increase of 1.9% and a year-over-year
increase of 29.0%. The balance came from international markets,
which were up 5.4% sequentially and 18.3% year over year.
The pro forma gross margin for the quarter was 71.5%, up 87 bps
sequentially and down 92 bps year over year. Volumes were a
positive in the year-over-year comparison. However, eBay sold more
low-value items, which resulted in a slight negative. The Payments
take rate improved again however, with both the transaction
expenses and transaction loss rate coming in flat.
Marketplaces margins are generally much higher than Payments
margins. However, 65% of transactions in the last quarter were
under the fixed price format. The share of the fixed price format
has been more or less stable to slightly growing for the last few
Operating expenses of $1.63 billion were higher than the
previous quarter's $1.56 billion. The operating margin was 23.5%,
up 35 bps sequentially and 23 bps from the year-ago quarter.
Expenses were relatively flat as a percentage of sale compared with
both the previous and year-ago quarters, although product
development costs trended up, while G&A trended down.
Excluding the impact of amortization of intangible assets and
gain from divested business on a tax-adjusted basis, the pro forma
net income was $667 million or 19.6% of sales, compared to $632
million or 19.3% in the previous quarter and $610 million or 22.1%
in the year-ago quarter.
Including the special items, the GAAP net income was $692.0
million ($0.53 per share) compared to $570.0 million ($0.44 per
share) in the March 2012 quarter and $283.4 million ($0.22 per
share) in the June quarter of last year.
Balance Sheet and Cash Flow
The company has a solid balance sheet, with cash and short-term
investments of $5.75 billion, down $117.0 million in the last
quarter. eBay generated $768 million in cash from operations and
spent $357 million on capex, netting a free cash flow of $411
million (up from $289 million in the last quarter). eBay also spent
$355 million on share repurchases.
Management expects third quarter 2012 revenue of $3.3-3.4
billion (down 1.4% sequentially and up 13.0% year over year at the
mid-point), which was below consensus expectations of $3.42
billion. The company expects to generate a GAAP EPS of 42 to 44
cents and a non GAAP EPS of 53 to 55 cents. The EPS guidance is
above the Zacks Consensus of 47 cents and just short of the street
expectations of 55 cents.
For 2012, management expects revenue of $13.8-$14.1 billion,
GAAP EPS of $1.91 to $1.96 and non-GAAP EPS of $2.30 to $2.35.
eBay's business continues to show all signs of improvement. Both
Payments and Marketplaces are showing improving trends versus the
year-ago quarter, an indication of the changing business
We think eBay has taken all the necessary measures, beginning
with the fixed price format, moving on to wooing big sellers and
customers, and then improving the technology and navigation of its
To this, the company is adding key capabilities through
acquisitions. For instance, GSI brought fulfillment services, while
Zong brought capabilities in online payment systems.
At the same time, we remain concerned about increasing
competition from major online retailers, such as
), as well as many other smaller players. Additionally,
) has been making some plays in the online retail space that
potentially increase competition for the company. While eBay's
payments business shows great promise and innovation has been very
strong here, competition is not far behind.
All things considered, we are impressed with eBay's strategy and
execution and our sentiments are reflected in the Zacks Rank of #3,
which translates to a Hold rating in the short term (1-3
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