eBay Inc: Don’t Take Profits on EBAY Stock Just Yet

Solid Earnings Propel EBAY Stock to New HeightsSolid Earnings Propel EBAY Stock to New Heights

Second-place finishers don’t usually get treated that well in the stock market, but eBay Inc (NASDAQ:EBAY) stock has been an exception.

So far, this earnings season has not been easy for companies in the Internet industry. A company can beat both top- and bottom-line expectations and its stock can still get killed. But when eBay reported its earnings, EBAY stock surged 10.89%.

As a matter of fact, while many Internet stocks are still struggling in the red, eBay stock just soared past its all-time high.

What’s the secret? Well, since it’s earnings season, beating expectations is a good way to start. In the second quarter of 2016, eBay generated $2.23 billion in revenue, beating Wall Street’s expectation of $2.17 billion. Adjusted earnings came in at $0.43 per share, better than analysts’ estimates of $0.42 per share. (Source: “eBay Inc. Reports Second Quarter 2016 Results,” eBay Inc, July 20, 2016.)

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The company also issued optimistic guidance. For full-year 2016, eBay expects $8.85 billion–48.95 billion in net revenue, above the consensus estimate of $8.81 billion. It also raised its full-year earnings forecast to $1.85–$1.90 per share, which, for the most part, was above the $1.86 per share analysts were expecting.

The good news doesn’t end just there, though. eBay’s board of directors also authorized an additional $2.5-billion stock repurchase program, with no expiration from the date of the authorization.

Going forward, I believe that eBay is well-positioned for the future of e-commerce, even though it might still live in the shadow of Amazon.com, Inc. (NASDAQ:AMZN).

EBAY Stock and GMV Growth

OK, eBay is not the market leader in the e-commerce business, but that doesn’t mean it can’t capitalize on the growing trend of consumers shopping online. On a foreign exchange–neutral basis, eBay’s second-quarter gross merchandise volume (GMV) increased by six percent year-over-year.

Also, even though the market is as competitive as ever, there is a sign that eBay is not really afraid of Amazon. Amazon recently had its “Prime Day”—its biggest sales day of the year—but according to eBay, the company wasn’t really affected by it.

In the earnings conference call, eBay’s president and chief executive officer, Devin Wenig, said, “I don’t want to really get into it other than saying Prime Day was a really good day for us. It was a really strong day of growth for us.” (Source: “eBay Devin N. Wenig on Q2 2016 Results – Earnings Call Transcript,” Seeking Alpha, July 20, 2016.)

eBay, StubHub, and Classifieds

Today’s eBay is much more than just eBay.com. Other than its main online marketplace, the company also owns classifieds platforms and StubHub, an online ticket marketplace. This quarter, StubHub’s GMV grew 35% year-over-year to $1.1 billion. Revenue from the ticket site surged 40% year-over-year to $225 million.

StubHub and eBay’s main marketplace complement each other. If you just bought a ticket on StubHub to go to a game, you might also want to get a jersey from eBay.com.

eBay also runs many classifieds web sites. These are doing pretty well also. In the quarter, revenue from eBay’s classifieds segment grew 15% year-over-year.

Note that 100% of eBay’s classifieds revenue comes from outside of the U.S. Its growth was driven by strength in automotive and real estate verticals in several different countries. In the past six quarters, the company’s classifieds sites have consistently been producing double-digit growth for eBay stock.

The Bottom Line on EBAY Stock

At the end of the day, financials matter. Some companies are in the growth stage and making losses, but at some point, investors expect them to turn profitable. Fortunately, eBay is already at that stage. Its core business is profitable, has growth drivers like StubHub and classifieds, and is continuing share repurchases. eBay stock might not be about to shoot through the roof, but at its current price-to-earnings multiple of less than 18X, there could be some serious value.