We Like eBay’s Turnaround Narrative but Soft Margin Guidance Justifies Negative Earnings Reaction

Narrow-moat eBay EBAY posted solid fourth-quarter results, with $2.51 billion in sales and $1.07 in adjusted EPS edging our $2.45 billion and $1.03 estimates, respectively, but saw guided margin pressure guidance send its shares down 5%-6% in afterhours trading. We view the market’s reaction as appropriate and expect to lower our own $60 fair value estimate by a mid-single-digit percentage as we digest results.

More concretely, management betrayed an appetite to invest in the rollout of an international shipping program, which we struggle to see paying for itself in the near term. While we recognize the benefits of reducing friction for buyers—with similar programs underpinning strong GMV growth inflection points at other online vendors—the timing of the investment strikes us as curious against a challenging economic backdrop, and modestly stronger medium-term international sales growth looks insufficient to offset the roughly 120-basis-point gross margin drag the firm expects the program to pose. In tandem with a 1% decline in nominal sales, acquisition integration costs, and targeted investments in focused categories, we expect to lower our 2023 adjusted EPS forecast by nearly one fifth for the year—to $3.45 from $4.20.

On a positive note, the firm’s focus categories strategy continues to bear fruit, with those verticals outgrowing the remainder of the marketplace by 7 percentage points, up from 5 in the prior quarter. In our view, the firm’s recent flurry of acquisitions all look supportive of the emphasis on key categories and the 16 million enthusiast buyers (who account for 70% of platform spending) that the strategy caters to, which we view as auguring well for the ongoing turnaround of the core marketplace. To this effect, the U.S. marketplace has seen annualized platform sales growth of 3.8% since the comparable prepandemic period, a healthy uptick from the 0.9% between 2015-19, a data point that we believe is obfuscated by the firm’s struggles abroad.