eBay (NASDAQ:EBAY) is scheduled to report its second quarter results on Thursday, July 20. In the first quarter, the company’s revenue grew 4% year-over-year (y-o-y) to $2.2 billion, driven by consistent low single-digit growth in both the marketplace and advertising businesses. Complementing the revenue growth, eBay’s gross profit was also up 3% y-o-y to $1.7 billion. On the other hand, operating expenses soared 11% on a y-o-y basis, due to which operating income fell 11 points to just under $550 million for the quarter.
We have a $32 price estimate for eBay, which is more than 10% lower than the current market price. eBay’s stock price has fluctuated between $28 and $37 in the last one year.
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Guidance for Q2 & Full Year
In the second quarter this year, eBay expects net revenue to be around $2.3 billion, implying a steady 3% growth on a y-o-y basis. It also expects non-GAAP EPS of around 44 cents a share, against consensus estimates of $0.47. Similarly, full year revenues could increase by around 4-5% to $9.4 billion, as shown below. In addition, the adjusted earnings per share for eBay for the full are also expected to follow suit and grow by mid-single digits to around $2.00 per share. This is also in line with consensus estimates. 
Business Overview
In recent quarters, eBay’s online ticketing business has largely driven top line growth for the company. StubHub revenues were up 30% and 15% on a y-o-y basis through 2016 and in Q1’17 to $937 million and $204 million, respectively. Much of the growth was attributable to strength in eBay’s ticketing business StubHub, which observed a 30% increase in GMV through 2016. Comparatively, marketplace GMV increased by low single digits in the same period. As a result, eBay’s marketplace revenues remained roughly flat over comparable prior year periods.
In an attempt to boost sales in the marketplaces segment, eBay announced a price match guarantee scheme last month. Under the conditions of this deal, buyers can look up identical products available on competitors’ websites such as Amazon (NASDAQ:AMZN), Wal-Mart (NYSE:WMT), Best Buy (NYSE:BBY) and a few others. Buyers can then inform eBay’s customer service representatives of the lower prices, and upon verification the company would issue a coupon for the difference. We forecast the average spend per active user on eBay to remain in the $500 range in the near future.
On the other hand, a price match guarantee can ensure that customers who are already on its platform do not move to other sites where a better deal is available. This strategy could help the company retain its existing customer base and keep it engaged. The total number of active buyers on eBay stood at 167 million for 2016. We forecast this number to rise to over 200 million by the end of our forecast period.
Despite consistent growth in sales over the last four quarters, eBay has been struggling with declining operating margins. Increased marketing and product development costs has led to a fall in margins in recent years. eBay’s adjusted EBITDA margin has consistently fallen from almost 50% in 2012 to just over 38% in 2016. We forecast this figure to decline, albeit at a slower pace to around 37% through the end of our forecast period.
Over the last few quarters, the company has made efforts to enhance the seller experience and improve data structures on its back-end for better search engine optimization. While this could help boost revenues in the coming quarters, it remains to be seen if eBay’s cost-cutting measures can help improve profitability.
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