In a market that was still buoyant last night on Wall Street, the online auction pioneer eBay ended the session with a double-digit decline. The reason for this was a lower than expected outlook for the current quarter.
eBay share price on the New York Stock Exchange
Despite solid results, with the value of transactions on its various platforms up 29% to $27.5 billion, the San Jose-based firm lost more than 10% last night at the close.
This fall is the result of observers’ concerns as to whether the world’s number one online auction house, like other marketplaces such as Amazon, Etsy and Wayfair, will be able to keep up the momentum generated by the pandemic, and whether it will be able to do so in the long term as the roll-out of vaccines accelerates.
And when the forecasts come out slightly below expectations, the sentence is almost irrevocable. eBay thus said it was counting on earnings per share, the benchmark indicator on Wall Street, of between 91 and 96 cents for the current quarter, compared with 98 cents expected, as well as sales of between 2.98 and 3.03 billion, compared with 2.98 billion anticipated.
The forecasts therefore overshadowed better-than-expected first-quarter results. The company ended the period with revenues of $3 billion, exceeding consensus estimates of $2.97 billion. Adjusted earnings per share were $1.09, slightly better than expected.
As mentioned earlier, gross merchandise volume, a closely watched industry metric that refers to the total value of all goods sold on the group’s platforms, rose 29% year-on-year to $27.5 billion, again above the $26.3 billion expected by analysts.
Restructuring and focus on customer experience
It is worth noting that the first three months of the year saw US giant sell its network of classifieds sites, including the successful 2ememain.be, to Norwegian company Adevinta. The sale also includes a portfolio of car sales brands including Automobile.it, Motors.co.uk, Autotrader and Carsguide.
Estimated to be worth $9 billion, the deal comes as a result of pressure from activist investor Starboard Value (just 1% of the shares), which is urging eBay to scale back.
This was not eBay’s first large-scale sale. A few months ago, the company also sold StubHub, a nugget specialising in the sale of tickets for sports events and European shows, to Viagogo for 4.05 billion dollars.
In the midst of restructuring, it intends to focus on its marketplace and user acquisition, working to improve the “customer experience” and prioritising the selection of unique products, new sectors (watches, trainers and refurbished products, a potential $500 billion market for the latter).
Growth will also be achieved through improved sales tools, new investments in artificial intelligence (e.g. focused on search engine optimisation), and increased mobile capabilities.
The analyst community remains positive on the stock, with a consensus 12-month target above $68, suggesting a potential return of 21%. Of the 30 brokers following the stock, 10 recommend buying the stock and 20 recommend holding it (for those who own it, of course).