eBay Earnings: What to watch

The online marketplace announces its latest results in just a few days.

| More on:
Smiling female investor holds hands up in victory in front of a laptop

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

eBay (NASDAQ: EBAY) investors had a fantastic 2020, with the stock price comfortably outpacing the broader market during the pandemic-fuelled e-commerce boom. Sure, companies like Amazon and Shopify posted wider gains. But eBay's nearly 40% share-price spike reflected some major operating wins and kept it ahead of other huge online businesses, including Walmart.

Investors are about to learn exactly how well eBay did in 2020 when the company announces its holiday season results. The strength of that performance, along with management's official outlook for 2021, will determine whether the stock continues its winning streak into the new year.

Let's take a closer look at the company in advance of the fourth-quarter earnings report's release on Wednesday, Feb. 3, and what investors should watch for.

Merchandise volumes and conversion rates

eBay's core growth metric is the volume of merchandise moving through its platform. Soaring results here formed the basis for last year's stock surge. Volume had been flat or declining in the quarters before the pandemic struck but shot up to over 20% year over year as commerce stampeded to online channels beginning in late February.

This quarter's report will answer big questions around the sustainability of that spike. Volume gains year over year slowed to 21% in Q3 from 29% in the quarter that captured the most intense period of retailing shutdowns. For its part, management in late October forecast gains in the low double-digit percentages. However, eBay easily surpassed its last quarterly outlook, and investors are hoping for another beat this week.

Other indications of healthy market share would show in an expanding buyer pool and robust conversion rates for its product pages. CEO Jamie Iannone should comment on both these metrics on Wednesday.

Cash and profits

eBay's asset-light operating model restricts its growth potential a bit as compared to Amazon, but the trade-off is higher profitability and impressive cash flow. Earnings more than doubled last quarter as operating margin surged thanks to the combination of higher sales, lower expenses, and an uptick in seller transaction fees.

Wall Street is expecting more gains ahead in this area, with reported earnings set to rise to $0.83 per share compared to $0.66 per share a year ago. But the more useful figure to follow is cash flow. eBay generated $584 million of free cash flow in Q3, and the company needs more success here to meet management's goals of investing in the business while paying down debt and sending more cash to shareholders through dividends and stock repurchases.

The 2021 outlook

Iannone and his team will be looking at an unusually wide range of potential results as they craft their official 2021 forecast. Organic sales likely increased by at least 20% in 2020 compared to their initial prediction targeting a flat result. That boost sets a high bar for growth this year, but it also gives the marketplace giant momentum in a quickly growing industry.

The good news is eBay already showed off a few impressive competitive advantages at a time when sellers were looking for new platforms they could use to connect with their customers during COVID-19.

The company's main challenge for 2021 is convincing these small businesses to stick around, mainly by making the platform more popular with buyers and easier for sellers to use. These successes are the key to eBay protecting its positive momentum in what's likely to be a competitive selling period ahead for the e-commerce industry.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Demitri Kalogeropoulos owns shares of Amazon. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Amazon and Shopify. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends eBay and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. The Motley Fool Australia has recommended Amazon. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on International Stock News

A male investor sits at his desk looking at his laptop screen holding his hand to his chin pondering whether to buy Macquarie shares
International Stock News

If you invested $10,000 in Nvidia stock the day ChatGPT came out, this is how much you'd have today

Buying Nvidia when the disruptive AI chatbot launched would have been a smart move.

Read more »

A Tesla car driving along a road at sunset
International Stock News

Why Tesla stock was climbing today

Investors were encouraged by news of a price hike on the Model Y.

Read more »

Plate with coloured wedges being parcelled out like a slice of pie representing a share split
International Stock News

Stock-split watch: Is Nvidia next?

Nvidia last split its stock when it traded for a pre-split $744 in 2021.

Read more »

A woman in jeans and a casual jumper leans on her car and looks seriously at her mobile phone while her vehicle is charged at an electic vehicle recharging station.
International Stock News

1 Wall Street analyst thinks Tesla stock is going to $125. Is it a sell?

Tesla is no longer a magnificent stock, according to a Wells Fargo analyst.

Read more »

A young man goes over his finances and investment portfolio at home.
International Stock News

Is Nvidia stock a buy?

The company's stock could rise 40% over the next two years and outperform the S&P 500.

Read more »

Man with hands in the middle of two items with money bags on them.
International Stock News

Is Nvidia headed for a stock split?

Nvidia stock has split five previous times in the company's history.

Read more »

Digital rocket on a laptop.
International Stock News

Nvidia shares surged (again) today. Is it too late to buy the red-hot artificial intelligence (AI) growth stock?

Nvidia stock has gained nearly 300% over the past year. Can investors still profit from this AI stock?

Read more »

A woman holds a soldering tool as she sits in front of a computer screen while working on the manufacturing of technology equipment in a laboratory environment.
International Stock News

Can you buy Nvidia shares on the ASX?

This stock has rocketed higher. How do we get access to it?

Read more »