EBay Jumps Most in 10 Years as Post-PayPal Era Starts Strongby
Company sends cash to shareholders with $599 million purchase
Third-quarter results are in line with analyst estimates
EBay Inc. reported third-quarter profit and sales that topped analysts’ estimates, raised its outlook for the year and bought back $599 million of its own stock, showing investors that the online marketplace is on solid ground after its recent split with PayPal. Its shares rose the most in 10 years.
The results also confirmed that the company is recovering from a data breach and Google Inc. search-engine changes last year that hurt e-commerce traffic, as the company heads into the critical holiday shopping season. Given the challenges, all EBay had to do was avoid any stumbles after the separation with PayPal Holdings Inc. in July, Mark Mahaney, an analyst at RBC Capital Markets, said Wednesday.
The shares jumped 14 percent to $27.58 at the close Thursday in New York, marking their sharpest gain since July 2005. The advance left the stock down 1.1 percent since the split was completed July 20.
"There were fears the company would miss estimates," said Mahaney, who has the equivalent of a hold rating on the stock. "The fact that it didn’t was all anyone was really looking for in this market."
The goal of July’s split was to make sure that each company could focus on their main businesses. EBay is facing especially fierce competition from Amazon.com Inc., Wal-Mart Stores Inc. and other retailers ahead of the year-end holiday shopping season. The challenge for Chief Executive Officer Devin Wenig is to catch up with the industry’s growth rate; U.S. e-commerce sales are projected to hit $79.4 billion in November and December, up 14 percent from a year earlier, according to EMarketer.
Profit, excluding items, was 43 cents a share on revenue of $2.10 billion, compared with analysts’ average projection for 40 cents and $2.09 billion, according to data compiled by Bloomberg. Sales were $2.15 billion in the same period a year earlier, excluding PayPal, the San Jose, California-based company said in a statement Wednesday.
For the full year, EBay raised its profit forecast to $1.80 to $1.82 a share, from $1.72 to $1.77. Analysts were expecting, on average, $1.78. The revenue outlook for a rise of 3 to 5 percent was unchanged. The company said it still has $2.4 billion remaining on its share repurchase program.
"This is still a great business and it’s growing," Wenig said.
EBay, which attracts 159 million buyers and had $19.6 billion in gross merchandise volume in the latest quarter, has been taking steps to streamline itself and boost its appeal to merchants. The company killed its U.S. same-day delivery service EBay Now and struck a deal to sell its enterprise unit, which provided warehousing, delivery and customer support for web merchants, for $925 million to a private equity group.
The online marketplace is also collecting data to show buyers merchandise that they might be interested in buying, instead of relying on searches alone, Wenig said. Search engines, which rely on persistence as a measure, punished EBay because so many of its listings come and go within seven days, he said.
He also highlighted EBay Plus, an initiative launched in Germany in September where customers pay a fee in exchange for free delivery, similar to Amazon’s Prime subscription service. He also said strong growth of its event ticket marketplace StubHub helped the quarterly results, and the company will continue to expand it abroad.
The e-commerce company is also implementing changes to its seller-rating system so that sellers aren’t penalized for late shipments beyond their control or routine returns and exchanges. This is aimed at growing EBay’s base of 25 million merchants and keep them from shifting inventory to competing sites such as Amazon and Etsy Inc.
"There’s this collective sigh of relief out there that things aren’t falling apart," said Steve Weinstein, an analyst at ITG.