EBay Quarterly Earnings Analysis: By the Numbers

AP/Ben Margot
EBay (EBAY) just reported its preliminary financial results for the quarter that ended Sept. 30, based upon which we provide a unique corporate earnings release based analysis of its performance. Our analysis focuses on the company's performance for the same quarterly period on a year-on-year basis (unless stated otherwise).

EBAY-US is one of the first companies amongst its peer group to announce earnings for this period.

Here are the highlights:
  • Summary numbers: Revenues of $4.353 billion, Net Earnings of $673 million and EPS of $0.54. Performance focus more on top-line than bottom-line: same period year-on-year revenue change of 12.02% vs. change in earnings of -2.32%.
  • Gross margins now 75.14% from 75.63% compared to the same period last year, EBITDA margins now 26.33% from 29.64%
  • Ability to strengthen the balance sheet? Year-on-year change in Operating Cash Flow of 2.55% better than change in earnings.
  • Earnings decline from operating margin decreases as well as from unusual items

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income (See complete table at the end of this report):

2013-09-302013-12-312014-03-312014-06-302014-09-30
Revenues3886.004543.004279.004389.004353.00
Revenue Growth (Qtr YOY)14.7013.8314.1713.3812.02
Earnings689.00850.00-2326.00676.00673.00
Earnings Growth (Qtr YOY)15.4113.33-443.575.63-2.32
Net Margin17.7318.71-54.3615.4015.46
EPS0.530.65-1.820.530.54
Return on Equity12.4114.65-43.0214.0213.88
Return on Assets7.018.34-22.686.586.25
Revenue Growth Versus Earnings Growth

Companies sometimes focus on growing their top-line (Sales or Revenues) more than their bottom-line i.e. Earnings or Net Income. Investors should look at revenue growth to understand a company's ability to grow its market share, and earnings growth to look at the company's ability to generate returns. Comparing revenue growth to earnings growth helps understand a couple of items: (1) A company's focus on gaining market share vs. generating profits and (2) How additive or dilutive the revenue performance has been to earnings.

EBAY-US's year-on-year change in top line compared to the same period last year of 12.02% is better than its change in earnings which was -2.32%. The company's performance this period suggests a focus on the top-line at the expense of bottom-line earnings. It remains to be seen how the rest of the peer group results turns out and if EBAY-US's performance suggests any major shift in the composition of market share in this sector. Also, for comparison purposes, revenues changed by -0.82% and earnings by -0.44% compared to the immediate last quarter.
Earnings Growth Analysis

The company's year-on-year decline in earnings has been influenced by the following factors: (1) Decline in gross margins from 75.63% to 75.14% and (2) issues with cost controls. As a result, operating margins (EBITDA margins) went from 29.64% to 26.33% in this period. For comparison, gross margins were 75.14% and EBITDA margins 27.20% in the immediate last quarter.

Gross Margin Trend


Companies sometimes tradeoff for improvements in revenues and margins by extending friendlier terms to customers and vendors. One quick way to check against such activity is to compare the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is quite possible that the company's performance is a result of truly delivering in the marketplace and not simply a prop up using the balance sheet.

The company's decline in gross margins is offset by some improvements on the balance sheet side - working capital management shows progress. The company's working capital days have gone down to 146.37 from 271.92 for the same period last year, which suggests that the gross margin decline is not altogether bad.
Operating Cash Flow Growth Versus Earnings Growth

Companies often post earnings numbers that are influenced by non-cash activities. One way to gauge the quality of the declared earnings number is to judge the deviation in the growth in earnings from the growth in operating cash flows. In general, an earnings growth rate that is higher compared to the operating cash flow growth implies a higher proportion of non-operating and even one-time activities - such activities are typically not sustainable over long periods.


EBAY-US's year-on-year change in Operating Cash Flow of 2.55% is better than its change in earnings suggesting some ability to strengthen the balance sheet.


Unusual Items

The company's decline in earnings has been influenced by the following factors: (1) Decline in EBIT margins from 20.46% to 17.94% and (2) unusual items that decreased pretax margins from 22.47% to 18.40%.


EPS Growth Versus Earnings Growth

EBAY-US's year-on-year change in Earnings per Share (EPS) of 1.89% is better than its change in earnings of -2.32%.

Supporting Data

The table below shows the preliminary results along with the recent trend for revenues, net income and other relevant metrics:

2013-09-302013-12-312014-03-312014-06-302014-09-30
Revenues3886.004543.004279.004389.004353.00
Revenue Growth (Qtr YOY)14.7013.8314.1713.3812.02
Earnings689.00850.00-2326.00676.00673.00
Earnings Growth (Qtr YOY)15.4113.33-443.575.63-2.32
Operating Cash Flow1334.001713.001174.001494.001368.00
Operating Cash Flow Growth (Qtr YOY)10.0218.53-9.1329.907.72
Gross Margin75.6377.9075.5375.1475.14
EBITDA Margin29.6434.2129.9427.2026.33
Net Margin17.7318.71-54.3615.4015.46
Working Capital Days271.92221.26183.55118.78146.37
EPS0.530.65-1.820.530.54
EPS Growth (Qtr YOY)17.7814.04-456.868.161.89
Return on Equity12.4114.65-43.0214.0213.88
Return on Assets7.018.34-22.686.586.25

Company Profile


EBay, Inc. provides online market places for the sale of goods and services as well as other online commerce or ecommerce, platforms and online payment solutions to a diverse community of individuals and businesses. The company operates its business through three segments: Marketplaces, Payments and Enterprise. The Marketplaces segment includes the core ecommerce platform eBay.com; vertical shopping sites such as StubHub, Fashion, Motors and Half.com; classifieds websites such as Marktplaats.nl and mobile.de, and advertising services. The Payments segment includes core payments brand PayPal, which enables individuals and businesses to securely, easily and quickly send receive payments online and through a broad range of mobile devices. The Enterprise segment provides commerce technologies, omnichannel operations and marketing solutions for large, nationally recognized retailers and brands that operate in general merchandise categories, including apparel, sporting goods, toys & baby, health & beauty and home. In June 2013, eBay renamed the GSI segment as Enterprise. eBay was founded by Pierre M. Omidyar in September 1995 and is headquartered in San Jose, California.

CapitalCube does not own any shares in the stocks mentioned and instead focuses on providing unique fundamental research and analysis on approximately 50,000 stocks and ETFs globally. Try any of our analysis, screener or portfolio premium services free for 7 days. To get a quick preview of our services, check out our free quick summary analysis of EBAY.
eBay Inc.50.24Other Consumer ServicesUSD 48.06 - USD 59.7USD 62358.4 Mil.October 16, 2014EBAY-USUSDUSD2013-12-31 00:00:00N/A2014-09-30 00:00:00
Read Full Story

Markets

DJIA 20,937.91 43.08 0.21%
NASDAQ 6,138.71 5.09 0.08%
S&P 500 2,398.42 4.40 0.18%
NIKKEI 225 19,731.63 118.35 0.60%
HANG SENG 25,403.15 0.00 0.00%
DAX 12,659.15 39.69 0.31%
USD (per EUR) 1.12 0.00 0.07%
USD (per CHF) 0.98 0.00 -0.08%
JPY (per USD) 111.83 -0.12 -0.11%
GBP (per USD) 1.30 0.00 0.08%

Can't get enough business news?

Sign up for Finance Report by AOL and get everything from retailer news to the latest IPOs delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.