Previewing eBay's Q1 Earnings Report

What lies in store for this dot.com bellwether? Well, let’s take a look at where we’ve been, where we’re at, and hopefully where I think we’ll be by Wednesday.

First, let me give you a chart with quarterly revenue since eBay (EBAY) went public.

It displays revenue by quarter. It also has quarter over quarter growth (QoQ) and year over year growth (YoY).

Revenue History & Growth
Quarter	Revenue	QoQ	YoY
QTR 1 2001A	$ 154,090	15.00%
QTR 2 2001A	$ 180,905	17.40%
QTR 3 2001A	$ 194,425	7.50%
QTR 4 2001A	$ 219,401	12.80%	64%
QTR 1 2002A	$ 245,106	11.70%	59%
QTR 2 2002A	$ 266,287	8.60%	47%
QTR 3 2002A	$ 288,779	8.40%	49%
QTR 4 2002A	$ 413,928	43.30%	89%
QTR 1 2003A	$ 476,492	15.10%	94%
QTR 2 2003A	$ 509,269	6.90%	91%
QTR 3 2003A	$ 530,942	4.30%	84%
QTR 4 2003A	$ 648,393	22.10%	57%
QTR 1 2004A	$ 756,239	16.60%	59%
QTR 2 2004A	$ 773,412	2.30%	52%
QTR 3 2004A	$ 805,876	4.20%	52%
QTR 4 2004A	$ 935,782	16.12%	44%
QTR 1 2005A	$ 1,032,000	10.28%	36%
QTR 2 2005A	$ 1,086,000	5.23%	40%
QTR 3 2005A	$ 1,106,000	4.00%	37%
QTR 4 2005A	$ 1,329,000	20.16%	42%
QTR 1 2006A	$ 1,390,419	4.62%	35%
QTR 2 2006A	$ 1,410,784	1.46%	30%
QTR 3 2006A	$ 1,448,637	2.68%	31%
QTR 4 2006A	$ 1,719,901	18.73%	29%
QTR 1 2007A	$ 1,768,074	2.80%	27%
QTR 2 2007A	$ 1,834,429	3.75%	30%
QTR 3 2007A	$ 1,889,220	2.99%	30%
QTR 4 2007A	$ 2,180,606	15.42%	27%
QTR 1 2008A	$ 2,192,223	0.53%	24%
QTR 2 2008A	$ 2,195,661	0.16%	20%
QTR 3 2008A	$ 2,117,531	-3.56%	12%
QTR 4 2008A	$ 2,035,846	-3.86%	-7%
QTR 1 2009A	$ 2,046,636	0.53%	-7%
QTR 2 2009A	$ 2,097,992	2.51%	-4%
QTR 3 2009A	$ 2,237,852	6.67%	6%
QTR 4 2009A	$ 2,370,932	5.95%	16%

Payment Revenue

PayPal booked 795 MM in revenue in Q4 2009. With activity and listings increasing - and I don’t mind going out on a limb here - I am forecasting a 3% revenue increase from Q4. This is in line with historical growth rates. I expect revenue for PayPal to come in around 819 MM.

MarketPlaces

With added auctions, stable sell through rates and increasing consumer confidence, eBay’s MarketPlace business seems to have found its footing. It is this segment that is the biggest (and most difficult) to forecast. eBay has essentially assumed a retrench to below Q3 revenue. Based on what I’ve seen from auction listing rates and sell through rates (see the chart below), I think we’re in for another strong quarter that will exceed eBay’s estimates. Strong listings combined should counteract reduced take rates. I believe eBay will exceed its own published forecast . I’m estimating revenue at 1.38 billion for MarketPlaces.

eBay’s Sell Thru has been roughly in the high 30 percent range in Q4, 2009. This trend continues with a slight dip in March 2010.

Communications

Skype contributed 138 million in Q1 2009; if current trajectories have held, it should have contributed gross of around 185 million this quarter. However, eBay now only owns roughly 1/3, so keep that in mind with their revenue release a net revenue contribution of 61 million would be about in-line.

Currency Fluctuations

With half of eBay’s revenues coming from international markets, currency rates have a huge impact on revenue. The dollar gained some strength in the first quarter of this year versus the euro – around 6 percent. I would give eBay’s earnings a boost of around one percent due to currency exchange rates.

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eBay has given 2.1 to 2.2 billion in revenue guidance from the last earnings (Q4) report. I forecast that total eBay revenue will come in at 2.3 billion with eps of 0.33 cents (GAAP) and .43 cents (non-GAAP).

eBay: Finally Turning the Corner

Wow, it seems just like yesterday that I finished writing my analysis for eBay’s Q3 earnings. For Q4, eBay (EBAY) drops a blockbuster quarter with the stock up 8 % today. Let’s dig deeper and see if we can find out what’s going on here.

Turning the Titanic

eBay is not shy of controversy. From upsetting long time sellers, to having to delist inappropriate auctions, eBay seems to stir up the bee’s nest like no other dot com. A couple years ago, Meg Whitman, the long time CEO, handed the wheel to John Donahoe who was inheriting a rapidly slowing auction business. The new CEO quickly went to work implementing radical changes to the marketplace, and angering sellers along the way.

eBay had finally matured and Donahoe solidified the inevitable, turning eBay from a community-based startup to full fledged public corporate American company (that ultimately answers to shareholders.) The timing couldn’t have been worse, the radical changes occurred simultaneously with what seemed to be crumbling of the American financial system. The changes were further exasperated by the false assertion that eBay just bought the dead dog Skype.

It wasn’t until the second quarter of 2009 that eBay’s numbers started seeing the fruits of Donahoe's strategy. Q2 2009 was the first quarter with growth in almost a year seemed to initially validate Donahoe changes. The third quarter further solidified that John Donahoe’s makeover strategy was working. And with today’s quarterly earnings announcement, I think there should no longer be any doubt that there was a method to King Donahoe’s madness.

One more step toward that cashless society

If you don’t know that eBay has repositioned PayPal as its new flagship business unit, you do now. I’ve even joked that eBay might as well change their stock ticker to PYPL. PayPal’s growth and profits have continued to skyrocket. Amid what analysts considered would be a modest retail season, PayPal accelerated growth and further gained market share (when was the last time you used “Google Payments”?). An amazing 28% year over year growth and a very robust 34% growth in Total Payment Volume (TPV).

Bill Me Later’s also ended the year with 320 million accounts (almost 50% over last year)

PayPal Revenue (Click to enlarge)

PayPal is without a doubt the main driver of growth for eBay and will continue to be so. As a standalone business, PayPal has tremendous potential, and many investors simply do not realize that the realignment of eBay has already occured with PayPal truly being the 'mother company.'

Core Marketplaces

Now we come to the crux of eBay’s drama – the Mainstay site. Is John Donahoe plan working? Well what does this chart tell you?

Marketplace Revenue

Marketplaces generated $1.463 billion in revenue for the quarter. Most importantly, this is the first sign of growth in a year. If that’s not a turnaround, what is? eBay has finally stopped the contraction and squeezed out growth 3 quarters in a row now.

In these challenging times, eBay may have revealed its counter cyclical resilience. As more and more people are stretched financially, they are turning to the secondary market to purchase discounted items and sell unneeded items.

So Long, Farewell Skype

The ink is dry now and eBay is $1.9 Billion richer. (eBay now has a $5.2 billion war chest and minimal debt) More importantly, it was able to take the unwarranted bad press of their backs. Meg and eBay gave their best efforts to integrate Skype to eBay, but it became obvious that Skype was just too tangential to eBay. I plead to any rational mind however, that while yes, eBay did make a mistake in buying Skype – it was not a fatal one, not even a flesh wound. Today’s results have illustrated once again why somebody would buy Skype from eBay. While only releasing partial numbers, Skype shows that it continues to grow, be profitable, and most important continue to add to eBay’s bottom line with their retained 1/3 stake.

What lies ahead?

eBay always gives conservative forecasts, and this quarter is the first time I’ve seen a somewhat “bold” forecast. Last quarter they said 4th quarter would basically be flat. (Talk about under promising and over delivering.)

eBay expects 2010 to deliver $1.63 to $1.68 a share, with revenue coming in between $8.8 billion and $9.1 bill This is higher then what analysts were expecting of $1.60 a share on revenue of $9 billion.

It seems Donahoe may know something we don’t as the formerly cautious CEO seems to feel that tailwinds may finally be blowing

Disclosure: Author holds a long position in EBAY.