Source: PaxForex Premium Analytics Portal, Fundamental Insight
eBay is still struggling with a growth crisis right now, but the worst may be over. The online platform recently announced second-quarter results that exceeded expectations and indicated that sales and revenue trends are stabilizing.
While some eBay metrics are still declining at double-digit rates, the rate of decline slowed in the second quarter. Let's take a closer look at the results and why investors should feel more confident about fiscal 2022.
eBay's core marketplace business is still feeling the impact of the decline in demand compared to the surge in e-commerce sales during the blockchain phase of the pandemic. The company's customer pool is down 12% year-over-year, and sales volumes are down 18%. These results seem weak both on their own and when compared to the results of peers such as Etsy, which reported a 4% increase in buyers in late July.
However, eBay's losses were down from the previous quarter, allowing the company to beat management's forecast made in early May. Sales fell 6% (after accounting for currency fluctuations), while management had projected a loss of 9% to 7%. "Our strategy of focusing on categories is working, and payments and advertising are driving further growth," CEO Jamie Iannone said in a press release.
eBay also excelled on the financial side of the ledger. The take rate, or the commission rate the company charges sellers for its services, rose to 12.4 percent of sales, up from 11.1 percent a year ago. That rate has been rising for more than a year, in part reflecting new services such as payment processing and third-party advertising. By comparison, Etsy has this rate at 19% of sales.
Thanks to these gains, eBay's non-GAAP (adjusted) operating profit was 28.7% of sales, lower than the previous year but well above management's forecast. Management said the company is "on track" to meet its broader goals for 2022, despite volatility in Europe, supply chain and inflation issues, and currency movements.
Company executives are forecasting another quarter of slowing losses. Organic sales should fall 5% to 2% in the third quarter, management said, compared with a 6% drop last quarter. The company still believes the underlying growth rate will be a 6% to 3% loss for all of 2022.
Adjusted earnings will still be about $4 per share, and cash flow will be adequate, though lower than shareholders have seen in the past few years. eBay is still sending most of that money back to investors through stock buybacks and modest dividends.
It may be a few more quarters before the company returns to solid growth in key metrics such as customer pool and marketplace sales volumes. But second-quarter results and the outlook for the third quarter show that eBay is taking big steps in that direction.
Once growth resumes, the company will begin to set impressive earnings records thanks to higher profit margins and the upturn provided by the advertising and payments segments. In the meantime, investors can patiently collect capital gains, which are approaching $3 billion for the first half of 2022 alone.
As long as the price is above the 47.00 level, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 48.48
- Take profit 1: 50.00
- Take Profit 2: 53.00
Alternative scenario:
If the level of 47.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 47.00
- Take profit 1: 45.00
- Take Profit 2: 43.00
