This summary is based on the third quarter fiscal 2008 earnings call conducted by eBay Inc. (EBAY) on October 15, 2008.
Management:
Vice President, Investor Relations: Mark Rowen
President, Chief Executive Officer, Director: John J. Donahoe
Chief Financial Officer, Senior Vice President - Finance: Robert H. Swan
Key Investors Issues
- EPS was 38 cents a share compared to loss of 69 cents a share last year.
- Net income was $492 million compared to a loss in the same period last year of $936 million.
- The ecommerce company posted revenue of $2.12 billion, up $228 million from the same period last year.
Third Quarter Highlights
The ecommerce company posted revenue of $2.12 billion, up $228 million from the same period last year.
- Net income on a GAAP basis was $492 million, or 38 cents per share, and non-GAAP net income was $592 million, or 46 cents per share.
- The company generated $543 million in free cash flow during the quarter.
- The company continued to execute on stock buy-back program, repurchasing $623 million worth of eBay shares.
Combined businesses generated net revenues of $2.1 billion, a 12% increase over last year.
- Organic revenue growth excluding acquisitions and FX was 9%.
- Overall revenue growth was enabled by high growth PayPal merchant services, classifieds, advertising, and Skype. Revenue growth was negatively impacted throughout the quarter by the broader economic environment, as well as a strengthening U.S. dollar. The company saw considerable slow down across virtually all businesses beginning in mid-August.
Non-GAAP EPS was 46 cents per share, an 11% increase over last year and 5 cents per share above the high-end of guidance range.
- Adjusted for a one-time tax gain in the third quarter of 2007, EPS growth would have been 24%. The stronger-than-expected EPS performance was primarily driven by a lower tax rate and cost controls as the company tightened discretionary spending in light of the slowing economy.
- Operating margin was 31.8%, up 40 bps from last year even though lower margin businesses, PayPal and Skype, grew faster. Margins improved in all three of business segments year over year.
- The company generated free cash flow of $543 million, an increase of 6% from last year primarily driven by earnings expansion while CapEx as a percentage of revenues came in at 7%.
- Return on invested capital increased to 28.8% on a trailing 12-month basis. This measure has shown continuous improvement over the course of the year as the company has been able to generate higher earnings on the same level of capital employed.
The company experienced economic weakness across entire portfolio of businesses.
- Vehicles GMV, which makes up 20% of total GMV, decelerated by 12 points from the second quarter to third quarter and got progressively worse throughout the quarter. Non-vehicles GMV growth performed solidly in the first part of the quarter but started to decelerate sharply in mid-August. The company saw slowdown at Stub Hub during the second half of the quarter.
- Overall marketplace business segment achieved net revenues of $1.4 billion, a 4% increase over the year-ago period.
- Transaction revenue increased 1% and marketing services revenue increased 29% over last year. Marketplace’s revenue growth decelerated by nine points from second quarter, primarily due to slower GMV growth and a stronger U.S. dollar.
- Online comparison site, shopping.com, was impacted by changes made by search engines that disrupted shopping’s traffic this quarter. This business decelerated, impacting marketplace’s revenue growth by about a point. The company expects that shopping.com will continue to negatively impact growth rate for the next three quarters.
- Global GMV came in at $14.3 billion, down 1% compared to last year, with both the U.S. and international geographies decelerating from last quarter.
- Global GMV growth excluding vehicles was up 3%.
- Active user growth came in at 3% on a trailing 12-month basis.
- Excluding China and Taiwan, where the company is part of joint ventures, this metric remained at 6%.
- The company remains encouraged by strong rates of growth in fixed price format, which accounted for 46% of GMV and continues to grow much faster than the auction style format.
- Revised fixed price fee structure helped fuel a big surge in supply on sites with listings growth of 26%. However, conversion rates dropped by a sharp 18%, resulting in sold items growth of 6%, a four-point deceleration from the second quarter.
- Average selling price continues to fall down 7%, primarily impacted by the economic downturn as consumers trade down and buy fewer large ticket items. The combined deceleration sold items and average selling price resulted in GMV growth of minus 2% on an FX-neutral basis.
Classifieds showed strong revenue growth at 59% over last year, with text and graphical advertising partnerships continuing to exhibit strong growth at 127%.
Despite slowing during the second half of the quarter, Stub Hub increased revenue by 46%, helped by partnership with Major League Baseball and improvements to buyer conversion.
PayPal posted total revenue coming in at $597 million, a 27% increase versus the same period last year.
- Total payment volume was $14.8 billion, a year-over-year increase of 28%.
- DPV grew by 24% in the U.S. and 37% internationally.
- PayPal continues to achieve ubiquity on the web through increased penetration on eBay and an increasingly expanded footprint beyond eBay.
