) reported fourth quarter earnings of 63 cents, which exceeded
the Zacks Consensus by 2 cents, or 3.7% and more or less in line
with the Zacks ESP (expected surprise prediction of 3.3%). Strong
holiday sales drove results.
The reinvigorated Marketplaces business and progress with the
Payments business is leading to growing optimism about eBay
Gross revenue of $3.99 billion was up 17.3% sequentially and
18.1% year over year, exceeding consensus expectations of $3.98
billion and within eBay's guidance range of $.3.85-4.00
Around 86% of total revenue was transactions-based, while the
remaining 14% came from marketing services. Transactions-based
revenue grew 17.5% sequentially, while marketing services revenue
grew 16.2%. Growing 18.7% and 14.9%, respectively from the
year-ago quarter, both contributed to the upside versus
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 grew 17.3% sequentially and 15.9% year
over year. International non-vehicle GMV declined 1% on a
currency-neutral basis. The overall increase from the year-ago
quarter was helped by improved customer experience, success on
the mobile platform and particularly strong demand in clothing,
accessories, home and garden sales.
Vehicles GMV continued to weaken, declining 13% and 7%,
respectively, from the previous and year-ago quarters. Sales
through the fixed price format comprised 68% of total sales in
the last quarter.
eBay's Paypal remains the star performer, generating total
payment volume (TPV) growth of 18.0% and 24.3%, respectively from
the previous and year-ago quarters. TPV on eBay properties was up
18% (on a currency-adjusted basis).
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. eBay has been adding a number of retailers over
the past few quarters.
eBay ended the year with 23 major retailers including
) and Paypal was live at more than 18,000 retail locations. Its
) and Discover will help it to further extend its reach.
eBay's mobile business touched $13 billion in 2012 (from $4
billion in 2011 and $3 billion more than estimated).
Additionally, 4.3 million new users were added during the year.
The Paypal Mobile Express Checkout system, eBay Now and the Zong
acquisition are expected to boost mobile payment volumes going
revenue for the quarter was up 13.5% sequentially and 15.7% from
the year-ago quarter. The sequential revenue increase was the net
impact of a 12.2% increase in transaction revenue and a 16.2%
increase in marketing services revenue. The year-over-year
increase was due to a 15.8% increase in transaction revenue and a
14.9% increase in marketing services revenue. Active users in
Marketplaces were 112.3 million, up 4 million during the quarter.
Marketplaces generated 51% of total revenue.
eBay's top-rated sellers accounted for more than 42% of GMV in
the U.S., with same store sales growing 20% year over year.
Therefore, it is evident that sellers are gaining from coming to
eBay and driving more traffic to eBay properties.
revenue increased 12.8% sequentially and 24.3% from the year-ago
quarter. Revenue from transactions was up 13.3% sequentially and
23.8% year over year. The revenue per user increased both
sequentially and year over year. The revenue per transaction
increased slightly on a sequential basis but remained below the
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 last quarter appears
to be holiday-related). Revenue from marketing services was up
6.9% sequentially and 31.4% from the year-ago quarter. The
Payments segment generated 39% of total revenue.
- GSI, which brought in the remaining 10% of revenue, was up
75.3% sequentially and 9.5% year over year. Same store sales at
GSI customers increased 19% from last year.
Revenue by Geography
Around 49% of total revenue was generated in the U.S.,
representing a sequential increase of 19.1% and a year-over-year
increase of 17.0%. The balance came from international markets,
and were up 15.6% sequentially and 19.2% from last year.
The pro forma gross margin for the quarter was 69.4%, down 120
bps sequentially and up 62 bps year over year. Volumes were a
positive in both comparisons. eBay typically sells more low-value
items in the fourth quarter, which impacted the sequential
comparison. The Payments take rate declined, offsetting both the
transaction expenses and the transaction loss rate, which
resulted in a flattish transaction margin.
Marketplaces margins are generally much higher than Payments
margins. However, 68% 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
quarters, as the fixed price format is growing much faster than
Operating expenses of $1.81 billion were up 11.0%
sequentially. The operating margin was 24.0%, up 135 bps
sequentially and down 144 bps from the year-ago quarter. Both
product development and selling costs declined as a percentage of
sales, offsetting the weaker gross margin in the sequential
comparison. All expenses were flat to slightly up from last
Excluding the impact of amortization of intangible assets, the
pro forma net income was $834 million or 20.9% of sales, compared
to $700 million or 20.6% in the previous quarter and $676 million
or 20.0% in the year-ago quarter.
Including the special items, the GAAP net income was $751
million ($0.57 per share) compared to $597 million ($0.45 per
share) in the Sep 2012 quarter and $1.98 billion ($1.51 per
share) in the Dec quarter of last year.
Balance Sheet and Cash Flow
The company has a solid balance sheet, with cash and short
term investments of $9.41 billion, up $273 million during the
quarter. eBay generated $1.39 billion in cash from operations and
spent $296 million on capex, netting a free cash flow of $1090
million (up from $298 million in the last quarter). eBay also
spent $256 million on share repurchases.
Management expects first quarter 2013 revenue of $3.65-3.75
billion (down 7.3% sequentially and up 12.9% year over year at
the mid-point), which was just short of consensus expectations of
$3.79 billion. The company expects to generate a GAAP EPS of 48
to 50 cents and a non-GAAP EPS of 60 to 62 cents. The EPS
guidance is above the Zacks Consensus of 55 cents.
For 2013, management expects revenue of 16.00-$16.50 billion.
The GAAP EPS for the year is expected to be $2.23 to $2.29, while
the non-GAAP EPS is expected to be $2.70 to $2.75.
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
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 better fulfillment services.
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 competition from
major online retailers, such as
), as well as many other smaller players. Additionally,
) 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 and our sentiments are reflected in the Zacks Rank
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