Can eBay Keep Growing
The bar isn’t set particularly high, but here’s what investors should be watching going into the online marketplace’s second-quarter report.
eBay (NASDAQ:EBAY) is poised to announce second-quarter 2019 results on Wednesday, July 17, after the market closes — or exactly two weeks from today. Shares of the online marketplace are up nearly 40% year to date as of this writing, most recently spurred by its stronger-than-expected first-quarter report in late April.
That’s not to say eBay was shooting for the moon; first-quarter revenue climbed a modest 2.4% as reported and 4% at constant currency, to roughly $2.64 billion, while adjusted (non-GAAP) earnings increased a more impressive 26% to $0.67 per share. Both the top and bottom lines easily outpaced eBay’s guidance, provided three months earlier, helped by a combination of improvements to its core Marketplace platform and progress developing incremental growth opportunities in the payments and advertising spaces.
But this also raises the question: What should we be watching when eBay’s Q2 report hits the wires? And can eBay sustain this year’s momentum leading into the second half?
Let’s take a closer look.
On eBay’s expected headline numbers
In April eBay management told investors to expect second-quarter revenue of between $2.64 billion and $2.69 billion. That range assumes organic constant currency growth of 2% to 4%, and would mark an increase of roughly 1% at the midpoint as reported from $2.64 billion in the same year-ago period. On the bottom line, that should translate to adjusted earnings per share of $0.61 to $0.63 — up 17% at the midpoint from $0.53 per share in last year’s second quarter — bolstered by a combination of share repurchases and operational leverage.
Though we don’t usually pay close attention to Wall Street’s demands, most analysts are modeling roughly the same earnings on revenue slightly above the midpoint of eBay’s guidance range.
The underlying drivers of those results will be more important to gauge eBay’s success. For one, eBay needs to continue steadily building the number of active buyers (up 4% year over year last quarter, to 180 million) accessing its various platforms. To that end, increases in Marketplace platform revenue (up 4% at constant currency, to $2.2 billion last quarter) and gross merchandise volume ($21.6 billion Q1) have mostly kept pace with active-buyer growth in recent quarters.
To a lesser extent, eBay’s growth will either be supplemented or held back by revenue from its StubHub (flat at $230 million last quarter) and Classifieds (up 4% as reported, but 12% at constant currency last quarter to $256 million) platforms.
But perhaps most exciting are eBay’s nascent efforts to capitalize on next-generation payment and advertising solutions.
On the former, eBay boasted that its first-party advertising product resulted in an average visibility boost of 36% for its sellers last quarter. It enticed more than 800,000 active sellers to promote more than 200 million listings in the first three months of 2019, driving a 110% increase in related revenue to $65 million. This might be another seasonally slower period, but we should watch for eBay’s advertising initiatives to continue gaining steam.
On the latter, eBay intermediated payments for $220 million of gross merchandise volume in the first quarter, marking exceptional sequential growth of 61% from the fourth quarter of 2018 (eBay only launched its intermediation program in the third quarter of 2018). eBay CEO Devin Wenig said during last quarter’s call the plan is to begin a full rollout of the program starting in 2020, “building to a $2 billion revenue opportunity at scale.”
Finally, depending on relative out- or underperformance in the first half, listen closely for any updates to eBay’s full-year guidance. As it stands, that outlook calls for 2019 revenue of $10.83 billion to $10.93 billion, or organic currency-neutral growth of 2% to 3%, and adjusted earnings per share of $2.64 to $2.70.
If eBay is comfortable at least reaffirming those targets later this month, that should go a long way toward appeasing any concerns that its recent momentum might wane in the face of broader macroeconomic weakness and trade tensions — and the stock could easily extend its upward trajectory in response.