Review of EBAY third-quarter earnings after the market close
Going into today’s 3Q16 release, expectations were Revenues $2.2bn (+4.1% vs. prior year $2.1bn) and EPS $0.44 (+2.3% vs. prior year $0.43). The actual results of Revs $2.22 bn and EPS $0.45 were above expectations, but EBAY shares are off -7% after hours. The disappointments associated with the after hours share sell-off were gross merchandise volume (GMV, $20.1bn) and active user growth (global active buyers 165mm, +1mm) coming in below expectations along with 4Q16 financial guidance coming in below expectations (Revs $2.385bn vs. Street consensus $2.399bn; EPS $0.53 vs. Street consensus $0.54). Also, the fact that operating profit margins remain under pressure (3Q16 24.4% vs. 3Q15 27.5%) are negative for share performance. Meanwhile, note that EBAY shares had been trading higher so far this week leading up to the 3Q16 release.
EBAY’s Structured Data Initiative
EBAY’s structured data initiative started to provide positive results in 2Q16, 6 months earlier than what management had indicated earlier in 2016. Meanwhile, note that the structured data initiative only covered 10% of EBAY’s total traffic, so there is further room for improvement. The structured data initiatives are helping to improve product discoverability, SEO traffic, and conversion rates. Expect a faster pace of rollout to the user experience, something that should drive a gradual GMV acceleration. Meanwhile, EBAY is adding to the structured data initiative by acquisition, namely announcing recently an agreement to purchase Corrigon Ltd., a pioneer of visual search technologies, to contribute to the Marketplace platform’s structured data initiative.
EBAY’s gross merchandise volume hurt by weakness in the British Pound as well as the Euro?
EBAY results did reflect worsening foreign currency effects due to US$ strength vs. British Pound and Euro. The depressing effect of the “Brexit” vote are likely to have been a factor underlying the disappointing 4Q16 guidance. While EBAY weathered 3Q16 with better performance than expected, the fact remains that 4Q16 performance may be limited due to uncertainty in its UK and Europe operations.
Outlook for EBAY going forward?
EBAY is expected to continue experience increasingly powerful headwinds from competition with AMZN, a series of innovative vertical marketplaces, and massive internet platforms (GOOGL, FB) with “Buy Button” potential. Following the mixed 3Q16 results and 4Q16 outlook investor sentiment around EBAY will likely remain similarly mixed.