eBay Earnings Preview: Marketplace In Focus As Company Works On Revamp

E-commerce company eBay Inc EBAY reports earnings after market close on Wednesday, October 18. So far this year, the stock has had quite a run and is up 26.58% heading into tomorrow’s report. A lot of those gains were in the first half of the year and the stock is only up about 2% since the company’s last earnings release.

As EBAY has announced several initiatives focused on revamping its marketplace, the largest portion of its business, many analysts have increasingly focused on that segment’s gross merchandise volume, or GMV, and revenue in recent quarters.

In the second quarter, EBAY reported that its marketplace GMV, which is the total dollar amount of items sold, grew 6% year-over-year, excluding the impact of foreign exchange rates. That was a slight acceleration from the 4% to 5% year-over-year growth the company has reported since the start of 2016. Revenue from that segment grew 7% year-over-year, also excluding foreign exchange.

The company’s other two segments, StubHub and classifieds, are smaller parts of the business that had been growing at faster rates over the past several years. In the second quarter, EBAY reported that StubHub GMV declined 5% year-over-year and revenue grew 5%, excluding foreign exchange. The decline in GMV was a reversal from the 6% year-over-year growth reported in the first quarter this year. Historically, StubHub has had the highest GMV and revenue in the third and fourth quarters. Second-quarter revenue in the classifieds segment grew 11% year-over-year, excluding foreign exchange.

In addition to GMV and revenue in its marketplace, analysts will likely be interested in any commentary management has on the company’s initiatives focused on improving user experience and recent international advertising campaign. EBAY’s structured data initiative was announced in 2016 and has been focused on making the site’s catalog of items easier to navigate. In June, EBAY rolled out a major advertising campaign in the U.S. and management said it will expand it to key international markets throughout the remainder of the year.

CFRA analysts have said they expect the company’s growth investments to pressure EBITDA margins in 2017, with some recovery in 2018. They also expect the company to continue spending aggressively on mobile capabilities and offerings, international expansion, and new platforms and services.

On top of the company’s growth investments, EBAY has used excess cash to repurchase stock. During the second quarter, the company reported it had repurchased $507 million in shares, and the board of directors authorized an additional $3 billion in repurchases. In the past, management has typically commented on repurchase activity on the earnings call.

FIGURE 1: EBAY THREE MONTH PERFORMANCE. eBay (EBAY) is up 26.58% year-to-date, but its rally stalled in the third quarter and the stock was up 1.94% over the past three months. The bottom chart shows the stock’s implied volatility. Chart source: thinkorswim^® by TD Ameritrade.  Data source: Standard & Poor’s. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

eBay Earnings and Options Trading Activity

For the third quarter, EBAY is expected to report adjusted earnings of $0.48 per share, up 7% year-over-year, on revenue of $2.37 billion, according to third-party consensus analyst estimates. Revenue is also expected to grow 7% compared to the prior-year quarter.

Options traders have priced in about a 4% potential share price move in either direction around EBAY’s upcoming earnings release, according to the Market Maker Move indicator on the thinkorswim® platform.

In short-term options trading at the October 20 monthly expiration, calls have been the most active at the 38 strike price, pretty much right at the money with where the stock’s been trading the past few days, as well as the 39 strike. Puts have also been the most active at the 38 strike, with a decent amount of activity at the 36.50 and 37 strikes. As of this morning, the implied volatility sits at the 46th percentile. 

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined price over a set period of time.

Looking Ahead

Tomorrow morning, we’ll get a look at housing data when housing starts and building permits for September are released. On the earnings front, several more Dow components take the stage this week. Verizon Communications Inc. VZ reports before market open on Thursday and both General Electric Company GE  and Procter & Gamble Company PG report before market open on Friday. Don’t forget to check out today’s market update if you have time.