Drilling into eBay's numbers
Posted
Jul 16 2008, 04:53 PM
by
Kim Peterson
Rating:
EBay shares are dropping in after-hours, down more than 7% after the company's Q2 report. At first glance, the quarter looks pretty good: earnings came in at 43 cents a share (2 cents higher than the Street consensus) and revenue was also slightly better than expected at $2.2 billion.
What's troubling investors, however, is the company's Q3 forecast. Projected revenue and profit are slightly less than what analysts are looking for, and its full-year revenue estimate is on the lower end of the analyst spectrum.
Drilling into the quarterly numbers unearths a few items that could also concern investors. One biggie is that operating margin is dropping, to 31.9% from 32.4% for the same period last year. That's because two of eBay's fastest-growing areas, PayPal and Skype, have lower margins than the auction business.
It's useful to know that eBay divides itself into three areas: PayPal, Skype and then a broader "marketplaces" category that includes the core auction business along with e-commerce sites like Shopping.com and ticket center StubHub.
Marketplaces is by far the biggest in terms of revenue, but its growth is dramatically slowing. Last year at this time, the division was seeing 26% revenue growth. But that has slowed to 13% (down from 19% in Q1). EBay needs to reverse this trend quickly.
PayPal revenue growth has stayed in the same 32-35% range for five quarters now, with quarterly revenue now topping $600 million. EBay's gotta be happy with that. The problem, again, is that PayPal's margin runs at about 15% -- much lower than the 40% in Marketplaces.
Skype growth is also slowing, to 51% in Q2 compared with 103% a year ago. But it's still a relatively small part of eBay, bringing in a tenth of the revenue that Marketplaces brings.
GMV is a key metric to look for in eBay reports, and it slowed to 8% growth in the quarter from 12%-14% in the four previous quarters. GMV stands for gross merchandise volume, and is the value of all the successfully closed listings on the site.
On a positive note, the number of new listings has jumped 19% over the year-ago period. New listings had declined for most of 2007, but began ticking up in the December quarter. EBay has said that some of its recent policy changes would cause new listings to increase, and it looks like that's what's happening.
EBay is continuing to buy back its shares, spending a half-billion dollars in the quarter on 19 million shares. That gave a nice boost to quarterly profit figures. It's repurchased $4.7 billion in stock since 2006.
Related reading:
A close look at PayPal
Americans losing interest in eBay
EBay is looking cheap
EBay's unfair discount program
