Why eBay Is Sinking in Spite of Solid Earnings

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eBay Inc. (NASDAQ: EBAY) released third-quarter earnings report after markets closed on Wednesday. The e-commerce giant announced solid results but the reaction was not necessarily expected. Speculatively, eBay will have to perform much better than what analysts are predicting this holiday season to keep up with Amazon, but for now just meeting estimates does not seem to be working.

The company posted $0.45 in earnings per share (EPS) on $2.22 billion in revenue, versus consensus estimates from Thomson Reuters that called for $0.44 in EPS and $2.19 billion in revenue. The same period from last year had $0.43 in EPS and $2.1 billion in revenue.

In the third quarter, eBay added over one million active buyers across its platforms, to reach a total of 165 million global active buyers.

The company posted total gross merchandise volume (GMV) of $20.1 billion for the quarter. Marketplace platforms delivered $19.0 billion of GMV and $1.8 billion of revenue. StubHub had another strong quarter with GMV of $1.1 billion, up 23%, and revenue of $263 million, up 32%, aided by strength across concerts, theater and baseball as well as the continued benefit from ongoing product innovation.

In terms of the outlook for the fourth quarter, the company expects to see EPS in the range of $0.52 to $0.54 and revenues in the range of $2.36 billion to $2.41 billion. There are consensus estimates calling for $0.54 in EPS and $2.4 billion in revenue.

The company repurchased about $500 million of its common stock, or 16.5 million shares, in the third quarter of 2016. The company’s total repurchase authorization remaining is $2.3 billion.

Devin Wenig, President and CEO of eBay, commented:

In Q3 we delivered good top- and bottom-line financial results, led by consistent performance across our business. We continued to transform the shopping experience on eBay, delivered more personalization capabilities and began to activate our updated brand messaging.

The company generated $802 million of operating cash flow from continuing operations and $617 million of free cash flow from continuing operations during the third quarter of 2016. On the books, cash and cash equivalents and non-equity investments totaled $10.4 billion at the end of the quarter.

Shares of eBay closed Wednesday up 2.8% at $32.52, with a consensus analyst price target of $32.41 and a 52-week trading range of $21.52 to $33.19. Following the release of the earnings report, the stock was initially down over 7% at $30.10 in the after-hours trading session.