eBay reported a solid set of results for the second quarter of 2021, however the numbers created confusion in the market, due to the disinvestment of their Korean business operations.
Revenue grew of 14% from $2.34 bn to $2.7 bn, whilst Gross Merchandise Volumes (GMV) declined by 7% to $22.1 bn. Korean operations were classified as discontinued businesses, as the company reported a sound beat in EPS beat of $0.04.
The market was disappointed with third quarter guidance due to the normalization of the business as the Covid-19 lockdowns begin to ease-off from an extremely high base in 2020. Active buyers declined by 2% to 159 million, whilst active sellers actually grew by 5% to 19 million.
This reflects the resilience of the global e-commerce platform, enabling buyers and sellers to transact in 190 markets on a seamless basis. With a scaling-up of the payments system, in excess of 80% of the transactions subsequent to the reporting period should become an important source of revenue growth in the future.
eBay is undergoing a transformation in its business operations with the sale of low margin non-core assets. This has already reduced the elevated debt levels, with $5.4 bn in gross cash proceeds expected from asset sales, which include the sale of the classifieds business for cash and shares, and a 33% stake in Adevinta.
These are all part of a multi-year strategy by the new CEO Jamie Innone which includes focusing on high value buyers making up 75% of gross merchandise volumes, and with payments convergence and advertising revenues as important new income sources.
The company has generated $1 bn in operating cash flows in the current quarter, and $910 million in free cash flows (FCF), and appears to be in a major turnaround. Ebay also announced 9% revenue guidance.
eBay ended the second quarter with $13 bn in investments as a result of the two recent deals. It had a 20% investment in the Korean business and shares in the Adevinta business.
The significant improvement in the financial metrics has enabled the company to increase the share buybacks from $2 bn to an authorised $5 bn.
The share appears to offer good value at a forward PE of 15x, which is standing at a significant discount to its peers. I am a holder ebay shares in client segregated portfolios and believe that this midcap share is part of the new economy, and has good growth potential.