eBay (NASDAQ:EBAY) isn’t growing like it was in the early days of the pandemic. The online marketplace just posted some of its weakest sales metrics since 2019 as the stampede toward e-commerce slows. Its pool of active buyers shrank, and eBay handled lower volume than it did a year ago.
Still, its second-quarter results contained mostly good news for shareholders, including booming cash flow and encouraging growth in new business lines like advertising and payments processing. Let’s look at a few of the standout numbers from eBay’s second quarter.
1. Buyer pool: 159 million
One of eBay’s core growth metrics, its pool of active buyers, shrank 2% year over year to mark a sharp turnaround compared to the previous quarter. That figure was not only solidly positive through the past year but had accelerated in each of the last four quarters (rising from 1% in early 2020 to 8% at the start of 2021). The slump was reflected in falling gross merchandise volume (GMV), which fell 11% compared to a better-than-20% rise in each of the last four quarters.
2. Revenue: Up 11%
Management wasn’t surprised by the GMV pullback, and growth in the core business is still impressive compared to 2019. Meanwhile, eBay is getting a big boost from its advertising and digital payments offerings, which helped overall revenue rise 11% despite declining volume.
Executives had predicted between 8% and 10% growth on that metric back in May. “On an apples-to-apples basis,” CEO Jamie Iannone said in a press release, “all key business metrics met or exceeded expectations.”
3. Transaction fees: 11.3%
eBay’s financial metrics were noisy due to the portfolio transformation project that’s produced several major divestments since 2019. Strip out those temporary impacts, and the news is all good. eBay’s operating expenses fell as a percentage of revenue, free cash flow improved to 34% of revenue, and its transaction income — the fees it charges sellers to use the platform — rose to 11.3% of the top line compared to roughly 9% before the pandemic struck.
4. Cash returns: $1.6 billion
Management took advantage of the gushing cash flow and extra funds from the sale of its classifieds business. Stock-buyback spending jumped to $1.5 billion, up from less than $40 million in the prior-year period. Executives say they intend to deliver “meaningful returns” to shareholders from buybacks and dividends, and these latest figures back up that promise. “We are simplifying our portfolio,” Iannone said, “and growing our core while delivering significant shareholder value.”
5. The Q3 outlook: 6% to 8% organic growth
eBay called for another growth slowdown as organic revenue growth decelerates to between 6% and 8% in the third quarter (down from 11% this past quarter and 38% at the start of the year). Investors should be happy with that outlook, since it implies a soft landing from the volume spike in 2020.
There are many reasons to expect higher annual earnings from here too. Three of the biggest reasons include eBay’s new business lines, its double-digit transaction fees, and its aggressive share repurchase activity. These factors should amplify shareholders’ returns from holding this growth stock over the long term.
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