) shares slumped following its earnings report, despite the fact
that the company's earnings were ahead of the Zacks Consensus
The company's decision to repatriate $6 billion in offshore
cash by paying $3 billion in taxes was the most important part of
the announcement. Although management didn't say what justified
the action, they alluded to increased financial flexibility,
possibility of acquisitions, and increased investment in Paypal
The numbers in detail-
Gross revenue of $4.27 billion was down 5.9% sequentially and
up 13.7% year over year, slightly ahead of our expectations of
around $4.23 billion and in the middle of eBay's guidance range
of $4.15-4.25 billion.
The bulk of revenue (86%) continues to come from transactions,
with the balance coming from marketing services. Both categories
grew double-digits from the year-ago quarter but declined
sequentially on account of negative seasonality.
eBay has three segments: Marketplaces, which refers to the
revenue earned from the sale of goods available on eBay
properties; Payments, which refers to revenues generated through
Paypal; and Enterprises, which comprise mainly of services
rendered following the acquisition of GSI.
The three segments generated 49%, 42% and 9% of quarterly
revenue, respectively. As may be expected, the Marketplaces
segment took the biggest hit, declining 6.3% sequentially, while
the other two segments were flat. Marketplaces, Payments and
Enterprise revenue jumped 10.1%, 19.2% and 66.9% from year-ago
Both U.S. and International revenue declined sequentially and
grew year over year. But the decline in international was much
less at 3.7%. U.S. and International revenue grew 46.9% and 53.1%
year over year to around 47% and 53% of total revenue,
eBay's core gross merchandise volume (
) during the quarter was down 4.5% sequentially while growing
12.1% year over year (a relatively steady rate). GMV grew 11% on
a currency-neutral basis (the deceleration in the U.S. was offset
by strength in International). Active users grew very strongly
from both the previous and year-ago quarters. Sales through the
fixed price format comprised 76% of GMV in the last quarter. Top
seller same-store sales were up 19%.
eBay's Paypal remains strong, generating total payment volume
) growth of 0.1% and 26.7% (20% on a currency-adjusted basis)
from the previous and year-ago quarters, respectively. TPV
strength in the last quarter was on account of the addition of
Braintree and increased Paypal adoption by merchant sites all
over the world and traction on the mobile platform. Paypal
penetration on eBay grew from 51% to 53%.
eBay's enabled commerce volume (
) shrank 1.9% sequentially but stayed 24.2% above the year-ago
Mobile commerce volume jumped 70% from last year to touch $7
billion and eBay won 6.5 million new mobile customers.
The pro forma gross margin for the quarter was 68.9%, up 39
bps sequentially and down 88 bps year over year. Mix likely
impacted the sequential comparison. A slightly higher take rate
and lower transaction loss rate helped the year-on-year
comparison. This is the main reason for the gross margin decline
despite such a strong jump in volumes. The Payments transaction
margin expanded as a result. Gross profit dollars dropped 5.4%
sequentially and grew 12.3% year over year.
Operating expenses of $1.95 billion were down 1.3%
sequentially and up 13.7% from last year. The operating margin
shrank 177 bps and 89 bps, respectively from the previous and
year-ago quarters to 23%. The changes were mostly volume-related,
but product development costs grew more significantly.
Excluding the impact of intangibles amortization on a
tax-adjusted basis as well as the one-time tax item, pro forma
net income was $784.4 million or 18.4% of sales compared to $923
million or 20.4% in the previous quarter and $722 million or
19.3% in the year-ago quarter.
Including the special items, the GAAP net loss was $2.33
billion ($1.82 per share) compared to income of $850 million
($0.65 per share) in the Dec 2013 quarter and $677 million
($0.51 per share) in the March quarter of last year.
Balance Sheet and Cash Flow
The company has a solid balance sheet, with cash and short
term investments of $7.84 billion, down $1.18 billion during the
quarter. eBay generated $1.17 billion in cash from operations and
spent $206 million on capex, netting a free cash flow of $968
million (down from $1.432 billion in the last quarter). eBay also
spent $1.8 billion on share repurchases.
Management expects second quarter 2014 revenue of $4.325-4.425
billion (up 2.7% sequentially and 12.8% year over year at the
mid-point), which was just short of consensus expectations of
$4.40 billion. The company expects to generate a GAAP EPS of 51
to 53 cents and a non GAAP EPS of 67 to 69 cents. The EPS
guidance is much better than the Zacks Consensus of 60 cents.
For 2014, eBay expects revenue of $18-18.5 billion
(maintained), with GAAP earnings of $0.04 to $0.09 (down from
$2.40-$2.45) and non-GAAP earnings of $2.95-$3.00 (maintained).
The one-time tax in the last quarter is responsible for the lower
GAAP earnings number for the year.
eBay reported a solid quarter with both earnings and guidance
beating our expectations. What took everyone by surprise was the
cash repatriation, so everyone will be tracking the use of this
cash. We tend to think that the investment will be on the
Payments side, whether through acquisitions, advertising and
promotion, or product development.
The company has already taken all the necessary measures to
boost the marketplaces business, beginning with the fixed price
format, moving on to wooing big sellers and customers, improving
the technology and navigation of its properties, investing in
better fulfillment services and specially focusing on mobile
customers. Its drive to provide complete online solutions for
traditional retailers should further add to this growth.
It goes without saying that major online retailers, such as
) are not going to make things easy for eBay. Additionally,
) has been making some plays in the online retail/payments
segment that potentially increase competition for the company.
While eBay's marketplaces business is back on track and the
payments business is well ahead of the competition, execution
remains something to watch, which is the reason the shares carry
a Zacks Rank #3 (Hold).
Safer bets in the sector are Chinese ecommerce company
E-Commerce China Dangdang Inc.
), which carries a Zacks Rank #1, or
), both of which carry a Zacks Rank #2.
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