eBay: Steady As She Goes

ebay marketplaces growthMarketplaces Y/Y growth, actual vs. estimates

Photo: Evercore Partners

This note is from BI Research, a new tech-industry intelligence service. The service is currently in beta and free. To learn more and sign up, please click here.eBay reported earnings yesterday and they were pretty much in line with expectations. Revenue was slightly higher than consensus and margins slightly lower, mostly due to one-off expenses like integrations of acquisitions.

Here are the highlights, from Stifel Nicolaus: 

  • Revenues: Increased 32% y/y to nearly $3bn, accelerated from 25% y/y in 2Q. Organic growth of +18%, same rate as 2Q.
  • Margins Modestly Miss: Segment margins at Marketplaces dipped 120bp y/y to 38.5%, down 30bp q/q. Payment margins of 19.5% increased 20bp y/y and down 240bp q/q. Overall EBITDA margins of 30.7% deteriorated 390bp y/y which was 90bp worse than our estimate.
  • Operating Metrics: The growth in sold items accelerated to +9.6% y/y stronger than 7.7% y/y last quarter. PayPal ended the period with over 103mn active accounts, up nearly 3mn in the quarter.
  • Cash Flow and Use of Cash: eBay generated $526mn in free cash flow in the quarter down 9% y/y and only repurchased $33mn worth of shares vs. $245mn last quarter.
ebay payments growthPayments Y/Y growth, actual vs. estimates

Photo: Evercore Partners

eBay’s two big businesses, marketplaces and payments, are growing nicely with no surprises, as you can see from these charts from Evercore Partners’ Ken Sena (marketplaces, above; payments at right).The bottomline on eBay seems to be: steady as she goes. The marketplaces and payments businesses are doing well, and eBay is making the right moves.

eBay’s threats are all long-term: the marketplace is under increasing competition from Amazon’s third-party merchant services and smaller upstarts like Craigslist and Etsy; and PayPal must successfully make the transition to mobile where both giants like Google and innovative startups like Square are making audacious moves. 

Intelligently, the company sees this. It is investing heavily in those areas and in new initiatives like an e-commerce partnership with Facebook; it is also signaling that it will use its $5 billion cash pile for acquisitions, and eBay has been a good acquirer so far.

eBay does remain under long-term threat of disruption. And in classic “Innovator’s Dilemma” fahsion, if and when it happens, it won’t show up on the bottomline as the core businesses keep chugging along—until it’s too late.

This note was published as part of BI Research, a new industry intelligence service from Business Insider. The service is currently in beta and is free. To learn more and sign up, please click here.

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