E-commerce company eBay (NASDAQ:EBAY) was one of the big movers on Wednesday after posting surprisingly good earnings results and raising its dividend. The firm’s outlook also left investors feeling positive about the stock.
eBay’s share price was up by about 7% on Wednesday, trading at around $47.50 per share. Year to date, the stock is up by about 9%. Should investors buy now on eBay?
Strong quarter yields dividend raise
The holiday quarter was a good one for eBay as its revenue rose 2% to $2.6 billion in the fourth quarter, better than the $2.5 billion revenue estimate among analysts. It was fueled by a 2% year-over-year increase in gross merchandise volume (GMV) to $18.6 billion. While GMV in the U.S. was flat in the quarter at $8.9 billion, international GMV was up 4% to $9.7 billion. However, the number of active buyers was down 2% at 132 million.
eBay also recorded a big boost in first-party advertising revenue, which came in at $368 million, up 33% year over year. Total advertising revenue was $393 million in the quarter, representing 2.1% of GMV.
However, eBay’s operating expenses were up 14% year over year to $1.4 billion, and its operating income was down 27% to $410 million. The operating margin dropped to 16% from 22.5% in the fourth quarter of 2022. Expenses were up across the board with increases in product development, sales and marketing, and general and administrative expenses. However, on the bottom line, eBay’s net income came in at $728 million or $1.40 per share, which also beat projections.
Among its new initiatives in the quarter, eBay rolled out a new combined shipping program that enables buyers to purchase multiple items from one seller at reduced shipping costs. It also launched a new generative AI-powered social caption generator, which is designed to make social sharing easier for sellers.
In addition, the firm increased its dividend for the sixth consecutive year, boosting it 8% to 27 cents per share. eBay pays out a robust 2.25% dividend yield.
For the full year, eBay saw its revenue hit $10.1 billion, up 3% for the year, although its GMV fell 1% to $73.2 billion. Net income amounted to $2.8 billion or $5.21 per share, up from a $1.3 billion net loss in 2022. Further, eBay reported a healthy $2.4 billion of operating cash flow and $2 billion of free cash flow, with an operating margin of 19.2%.
“Our fortress balance sheet and durable financial model enabled us to invest in our strategic pillars while protecting earnings growth and delivering robust capital returns,” said Steve Priest, chief financial officer of eBay, in the earnings release. “I’m proud of the strong execution throughout 2023, and I’m confident our strategy will drive long-term shareholder value.”
Should you “buy now?”
The e-commerce giant expects $2.5 billion to $2.54 billion in revenue for the first quarter of 2024, which would be roughly in line with the same quarter a year ago. Earnings per share (EPS) is expected to be between 86 cents and 90 cents for Q1, or $1.19 to $1.23 on an adjusted basis. The outlook for revenue and adjusted EPS was better than analysts had anticipated, which helped fuel Wednesday’s rally in eBay stock.
It is hard not to like eBay for its balance sheet, liquidity, reliable dividend and low valuation. It is trading at just 9 times earnings and 10 times forward earnings, so it looks like a decent value. However, I’m not sure it has enough earnings growth potential, particularly in the near-term, to move the needle too much for investors. Thus, while eBay is a decent stock worth watching, investors can probably find some better options out there right now.
Disclaimer: All investments involve risk. In no way should this article be taken as investment advice or constitute responsibility for investment gains or losses. The information in this report should not be relied upon for investment decisions. All investors must conduct their own due diligence and consult their own investment advisors in making trading decisions.
