EBay’s Stock Jumps Thanks to Double-Digit Revenue Gains

EBay easily exceeded expectations in the first quarter, reporting double-digit gains for both revenue and income.

In after-hours trading, the stock was up 7.3 percent, or $2.63, to trade at $38.50 a share, exceeding its 52-week high.

The company said first quarter revenues totaled $3.3 billion, an increase of 29 percent year over year. For the same period, net income totaled $570 million, increasing 20 percent.

EBay attributed the strong results to momentum in its traditional marketplaces business, PayPal and the recently acquired GSI Commerce division. (See below for notes from the earnings call.)

In a statement, CEO John Donahoe said: “We believe that innovation in retail today is technology driven, and consumers are embracing smarter, easier, better ways to shop. We are enabling commerce in this new retail environment, supporting and partnering with sellers of all sizes and giving consumers worldwide the ability to shop anytime, anywhere, for whatever they want.”

The results trump both what analysts had been expecting and what the company was estimating internally.

Analysts, on average, had expected eBay to report earnings of 52 cents per share on revenue of $3.15 billion, according to a poll by FactSet. Those expectations were on the high side of eBay’s own forecast, which was estimating revenue in the range of $3.05 million to $3.15 million, with earnings per share of 50 cents to 51 cents.

When forecasting, companies and analysts use non-GAAP earnings per share, which exclude some extraordinary expenses. On a non-GAAP basis, eBay reported net income of $725 million, or 55 cents a share.

Here’s a breakdown of how the three units performed:

  • Marketplaces

The division, which includes both its auction and full-priced merchandise, saw gross merchandise volume increase 12 percent year over year to $16 billion. In particular, its fixed-priced business grew 18 percent.

  • PayPal

PayPal revenue increased 32 percent year over year to $1.3 billion, driven by increased penetration on eBay as well as more merchant adoption.

  • GSI Commerce

The GSI business, which was acquired last year and provides services to third-party retailers, generated $715 million in merchandise sales, up 26 percent over the same period a year earlier.

In Q2, the company expects revenues to continue to grow in the range of $3.25 billion to $3.35 billion. It said earnings per share for the same period would range between 49 cents and 51 cents a share. Non-GAAP earnings would range between 53 cents and 55 cents.

The company also raised full-year guidance, saying that it expects revenues in the range of $13.8 to $14.1 billion, with GAAP earnings per share of $1.91 to $1.96.

Notes from the Conference Call:

  • EBay’s CEO John Donahoe joins the call, and is very happy to report that all of eBay’s businesses are performing well.
  • PayPal has opportunities online, on the mobile phone and, increasingly, offline. Donahoe noted that half of the payments division’s revenue came from outside the U.S. PayPal is being used for 76 percent of purchases on eBay, which achieves the company’s 2013 goal.
  • Donahoe wants to talk about innovation: PayPal is now available in 2,000 stores around the country by swiping a PayPal card or entering a mobile phone number and PIN. “We have signed contracts with several additional retailers and will deploy over the next year,” he said.
  • Donahoe brags that PayPal Here, which competes directly with Square, just launched and is already available globally (unlike Square).
  • Donahoe addresses the executive shake-up at PayPal. It included the exit of former President Scott Thompson and head of product, Sam Shrauger, to Yahoo. David Marcus is the new president.
  • The company’s marketplaces business is also growing, jumping 22 percent year over year, which Donahoe notes is faster than the e-commerce category overall.  StubHub, the company’s ticket marketplace, also launched in the U.K.
  • And now, updates from GSI Commerce and X.commerce, the two divisions that are delivering services to retailers. They are also doing well! X.commerce, which is the newest, launched 2,000 new apps for retailers during the quarter.
  • In summary, Donahoe is pleased!
  • CFO Bob Swan is now giving a deadly boring recounting of the finances, despite the company’s stellar results.
  • EBay is increasing full-year guidance by $100 million on the top line and 5 cents on the bottom line.
  • In summary, Swan says he’s excited!
  • Now for the Q&A.
  • First question is about Home Depot and the rollout of payments to other retailers (of course, because it’s the sexy new thing …). Donahoe is very excited about it because it expands the opportunity for PayPal tremendously. He admits that consumers aren’t really using it because there’s been no advertising. In May, they’ll change that and try to get more engagement. In the interim, it is also working with other retailers, and in the second half of the year, they’ll be launching those as a way to test and learn. “I feel good about our progress,” he said. “We’ll be ready in 2013 and 2014 to roll out in new categories and internationally.”
  • Surprisingly good question from analyst: Will banks make eBay pay more for accounts tied to checking accounts in the future? The answer: They don’t worry about it and the Fed sets the rates. “We do not expect the Fed to make any changes to rates. If anything, we would expect the trend of going down to continue.” They also think they can use PayPal’s scale to get really competitive rates, and they have four more years left on the contract. In the worst-case scenario, even if its costs went up 5x, it’s less than a point of operating margin on PayPal, but they don’t expect that to happen.
  • Why is marketplaces doing better? Donahoe says customer retention is up, and over the past six months, they’ve been marketing. Active buyer growth is up 9.5 percent in core marketplaces business.

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I think the NSA has a job to do and we need the NSA. But as (physicist) Robert Oppenheimer said, “When you see something that is technically sweet, you go ahead and do it and argue about what to do about it only after you’ve had your technical success. That is the way it was with the atomic bomb.”

— Phil Zimmerman, PGP inventor and Silent Circle co-founder, in an interview with Om Malik