eBay (NASDAQ:EBAY) reported second-quarter earnings on Wednesday, Aug. 11. The results showed the company is beginning to experience the effect of reopening economies worldwide, which means negative growth numbers for the online retailer.
eBay experienced a surge of customers and revenue at the pandemic onset as consumers looked to avoid brick-and-mortar stores. Reversion to old shopping habits was to be expected, as was the less than stellar earnings report. Let’s take a closer look at the quarter’s results and see if there are any long-term implications in it.
A mixed quarter
In the second quarter, eBay shed 7 million active buyers from the previous quarter. The figure was down by 2 million from the previous year. Active buyers turn the revenue flywheel at eBay. Their presence attracts sellers to list products. Bringing the two together is how eBay makes money, so a loss in this metric harms its long-term prospects.
The second quarter consisted of major economic reopenings worldwide. Consumers likely wanted to get out of the house and visit places they have not been to in quite some time. It remains to be seen if these shoppers will return to eBay after their pent-up demand for outdoor activities is satiated.
The same trend affected the gross merchandise volume (GMV) on eBay — in other words, the total dollar amount of sales transacted on eBay. This is crucial because eBay takes a percentage of sales (take rate) as its main revenue source. In Q2 2021, GMV was down 7% compared to the same quarter last year. Again, this was not a surprise given the comparison with surging sales in Q2 2020.
A bright spot in the quarter for eBay was increasing the transaction take rate by over 200 basis points from the same quarter last year. This rate increased from 9.2% in Q2 2020 to 11.3% this year. That allowed eBay to earn more revenue in Q2 2021 than the year-ago quarter, even with lower GMV. Indeed, revenue grew by $331 million while GMV decreased by $1.5 billion.
eBay earned a higher take rate by migrating buyers on its platform to use its payment services and encouraging them to promote their listings. There is room to expand each of these further, which could lift the take rate even higher.
What this could mean for investors
The take rate has increased for four consecutive quarters, and it looks as though there is more room for expansion. The boost gives eBay a permanent increase in earning capacity at the expense of sellers. The move poses the risk of alienating those sellers and sending them to other e-commerce platforms, which is something for eBay investors to keep an eye on.
eBay has averaged an operating profit margin of 23.9% over the last decade. If these increases to the take rate stick without losing many sellers, it could increase those margins further. The stock is up 48% year to date, but it’s still trading at a favorable forward price-to-earnings ratio of 18.7. It’s not too late for investors who are interested in buying the stock.
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