eBay Inc . ( EBAY ) reported
first-quarter earnings of 55 cents, which exceeded the Zacks
Consensus by a penny, or 1.9%. Sequential comparisons were hard due
to holiday-driven strength in the December quarter. They were also
impacted by weakness in certain international markets. However, all
metrics were positive when compared to the year-ago quarter and it
is apparent that management initiatives to drive growth are bearing
Share prices dropped 2.6% after-hours as guidance disappointed.
Management stated that Europe and currency were likely to be weaker
Gross revenue of $3.75 billion was down 6.1% sequentially and up
14.4% year over year, just short of consensus expectations of $3.77
billion and at the high end of eBay's guidance range of $3.65-3.75
Around 86% of total revenue was transactions-based, while the
remaining 14% came from marketing services. Transactions-based
revenue dropped 6.1% sequentially, while marketing services revenue
dropped 7.2%. The decline is attributable to seasonality, as eBay
had very strong transaction growth in the December holiday season.
Growing 14.4% and 13.5%, respectively from the year-ago quarter,
both contributed to the upside versus guidance.
Revenue by Segment
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 declined 4.1% sequentially while growing
13.1% year over year. Non-vehicle GMV grew 13% on a
currency-neutral basis (U.S. 16%, international 11%). The overall
increase from the year-ago quarter was helped by better customer
experience, as site improvements continued and mobile engagement
grew. The clothing, accessories, home and garden categories
remained the strongest drivers. Vehicles GMV continued to weaken,
declining 2% and 10%, respectively from the previous and year-ago
quarters. Sales through the fixed price format comprised 68% of GMV
in the last quarter.
eBay's Paypal remains strong, generating total payment volume
(TPV) growth of 21.2% from the year-ago quarter. TPV was down
slightly on a sequential basis due to seasonality. TPV on eBay
properties was up 22% (on a currency-adjusted basis), driven by
increased Paypal adoption by merchant sites all over the world and
increased penetration on eBay.
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. Its agreements with NCR Corp ( NCR ) and Discover will
help it to further extend its reach.
eBay's mobile business touched $13 billion in 2012 (from $4
billion in 2011, $3 billion more than estimated). The company had 3
million new users in the last quarter. Better technology and
improved user experience should increase engagement on eBay
Marketplaces revenue for the quarter was down 4.5%
sequentially and up 13.3% from the year-ago quarter. The sequential
revenue decline was the net impact of a 3.8% decline in transaction
revenue and a 7.7% decline in marketing services revenue. The
year-over-year increase was due to a 12.8% increase in transaction
revenue and a 15.2% increase in marketing services revenue. Active
users in Marketplaces were 116.2 million, up 3.9 million during the
quarter. Marketplaces generated 52% of total revenue.
eBay's top-rated sellers accounted for more than 42% of GMV in
the U.S., with same store sales growing 17% year over year.
Payments revenue increased 0.5% sequentially and 18.3%
from the year-ago quarter. Revenue from transactions was down 3.8%
sequentially while increasing 18.0% year over year. The revenue per
user increased dropped sequentially and increased year over year.
The revenue per transaction was slightly higher on a sequential
basis but remained below the year-ago level. The trend indicates
that customers continue to show a preference for a larger number of
lower-value items (the slight increase in revenue per transaction
in the fourth quarter appears to be Holiday-related). Revenue from
marketing services was up 3.7% sequentially and 21.5% from the
year-ago quarter. The Payments segment generated a little over 41%
of total revenue.
GSI- GSI, which brought in the remaining 6% of revenue,
was down 40.7% sequentially and consistent with the year-ago
quarter. Same store sales at GSI customers increased 16% from last
Revenue by Geography
Around 48% of total revenue was generated in the U.S.,
representing a sequential decline of 8.2% and a year-over-year
increase of 13.2%. The balance came from international markets,
which were down 4.1% sequentially and up 15.5% from last year.
The pro forma gross margin for the quarter was 69.7%, down 7 bps
sequentially and 90 bps year over year. Volumes were a negative in
both comparisons. Additionally, eBay is now selling more lower-ASP
inventory, which is pulling down its margins. The Payments take
rate increased sequentially but was offset by higher transaction
expenses and a higher loss rate. All numbers weakened with respect
to the year-ago quarter. As a result the transaction margin
declined both sequentially and year over year.
Operating expenses of $1.72 billion were down 3.5% sequentially.
The operating margin was 23.9%, down 129 bps sequentially and up 78
bps from the year-ago quarter. All except selling costs increased
as a percentage of sales from both th previous and year-ago
Excluding the impact of amortization of intangible assets, a
restructuring gain and tax adjustments, the pro forma net income
was $722 million or 19.3% of sales, compared to $808 million or
20.2% in the previous quarter and $627 million or 19.1% in the
Including the special items, the GAAP net income was $677
million ($0.51 per share) compared to $751 million ($0.57 per
share) in the Dec 2012 quarter and $570 million ($0.44 per share)
in the Mar quarter of last year.
Balance Sheet and Cash Flow
The company has a solid balance sheet, with cash and short term
investments of $9.40 billion, down $6 million during the quarter.
eBay generated $937 million in cash from operations and spent $299
million on capex, netting a free cash flow of $638 million (down
from $1.09 billion in the last quarter). eBay also spent $476
million on share repurchases.
Management expects second quarter 2013 revenue of $3.80-3.90
billion (up 2.7% sequentially and 13.3% year over year at the
mid-point), which was short of consensus expectations of $3.95
billion. The company expects to generate a GAAP EPS of 46 to 48
cents and a non GAAP EPS of 61 to 63 cents. The EPS guidance is
below the Zacks Consensus of 57 cents.
For 2013, management expects revenue of 16.00-$16.50 billion
(maintained). The GAAP EPS for the year is expected to be $2.23 to
$2.29 (maintained), while the non GAAP EPS is expected to be $2.70
to $2.75 (maintained).
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
properties and investing in better fulfillment services.
It goes without saying that major online retailers, such as
Amazon.com ( AMZN ) are not going
to make things easy for eBay. Additionally, Google
Inc ( GOOG
) has been making some plays in the online retail/payments segment
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, although we recognize certain headwinds related to
Europe/Asia. Our sentiments are reflected in the Zacks Rank #3
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