Markets

eBay Earnings: 3 Things to Watch

eBay's (NASDAQ: EBAY) stock has enjoyed a strong rally so far this year. Investors were impressed with the online marketplace's surging growth trends during the initial phases of the coronavirus pandemic. They were just as excited about the prospect for improving profitability in late 2020 and beyond.

That optimism has set a high bar for eBay's upcoming earnings report, which is expected to show solid organic growth heading into the key holiday shopping season. Here are a few metrics to watch in the announcement set for Oct. 28.

A young woman shopping on her laptop.

Image source: Getty Images.

Sales trends

The biggest questions surround the recent growth surge and to what extent it will hold up through the end of the year. eBay reported several encouraging numbers on this topic last quarter. Along with a basic spike in customer traffic as consumers shifted spending to online sources, the marketplace attracted many more sellers to its platform and had rising conversion rates along with sales growth across most of its categories.

Investors will be looking to see if eBay stretched those successes into July, August, and September, a period characterized by resumed retailing activities across most of the world. Wins here would show up in elevated sales volumes, which management predicted would grow by high-teen percentages in Q2. Also keep an eye on the buyer pool and whether it keeps rising at faster than a 2% clip.

Fees and cash

eBay entered the pandemic with far higher profit margins than its peer e-commerce giants, thanks to its asset-light approach to connecting buyers with sellers. That gap only widened in Q2, with operating margin jumping to 28.7% of sales versus 23% a year ago. The company is less exposed to the type of inventory write-offs that pinched profits at many physical retailers, and its marketplace also faces less risk around manufacturing and supply chains.

These factors all support robust returns, but transaction fees are the key metrics to watch when it comes to profitability. eBay kept the rate it charges buyers to roughly 9% last quarter as short-term promotions offset gains in other parts of the business. Even a tiny uptick in that metric would amplify earnings growth in the third quarter.

Looking out to the holidays

eBay lifted its 2020 outlook back in July, and investors have a good shot at seeing a similar boost on Wednesday assuming growth trends didn't disappoint. As it stands today, the company is predicting sales between $10.6 billion and $10.8 billion, equating to organic growth between 12% and 14%. For perspective, eBay was forecasting a roughly flat result on that metric before the pandemic struck.

It is smart to assume that growth will trend back down toward that pre-pandemic rate as the threat of the virus declines in the next year. But it's also clear that a large portion of the spending that consumers moved to online sources is here to stay. eBay's core challenge now is to convince its newest buyers and sellers to continue using the platform following a record growth year.

10 stocks we like better than eBay
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and eBay wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of September 24, 2020

Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool recommends eBay and recommends the following options: long January 2021 $18 calls on eBay and short January 2021 $37 calls on eBay. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

EBAY

Latest Markets Videos

    The Motley Fool

    Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

    Learn More