eBay Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. All amounts are U.S. dollars. eBay reports one operating segment, Marketplace. Classifieds, StubHub and eBay Korea are presented as discontinued operations; eBay Korea was classified as held for sale.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Change or context |
|---|---|---|---|
| Net revenue | $2.501 billion | $2.258 billion | Up 11%; FX-neutral growth was 10% |
| Net transaction revenue | $2.350 billion | $2.098 billion | Up 12%; higher take rate offset lower GMV |
| Marketing services and other revenue | $151 million | $160 million | Down 6% |
| GMV | $19.453 billion | $21.674 billion | Down 10% reported; down 12% FX-neutral |
| Operating income | $662 million | $662 million | Flat; operating margin fell to 26.5% from 29.3% |
| Income from continuing operations | $283 million | $605 million | Diluted EPS was $0.43 versus $0.86 |
| Net income | $264 million | $664 million | Includes discontinued-operations loss of $19 million versus income of $59 million |
| Continuing operating cash flow | $661 million | $646 million | Quarterly cash flow; nine-month total was $2.618 billion versus $2.174 billion |
Cost of revenue rose 42% to $678 million, reaching 27.1% of revenue versus 21.2%. Total operating expenses rose 4% to $1.161 billion. Transaction-loss provision increased 88% to $112 million, including higher managed-payments chargebacks and customer-protection costs. Gross margin, calculated from reported gross profit and revenue, was approximately 72.9%, versus 78.8% a year earlier.
For the first nine months, revenue was $7.807 billion, up 22% reported and 20% FX-neutral. Continuing-operations income was $1.145 billion versus $1.715 billion. Reported net income of $11.639 billion included a $12.524 billion pre-tax gain on the Classifieds transfer; the prior-year period included StubHub sale gains. These divestiture gains make total net income and EPS poor indicators of underlying continuing performance.
Liquidity, debt and capital allocation
- At September 30, cash and cash equivalents were $1.244 billion; short-term investments were $4.038 billion. Management reported $5.1 billion in cash, cash equivalents and non-equity investments from continuing operations.
- Total debt was $9.082 billion, including $1.355 billion classified as short-term and $7.727 billion long-term. eBay issued $2.5 billion of senior notes in May; no commercial paper or credit-facility borrowings were outstanding. The $2 billion revolving facility was available, subject to customary conditions.
- Nine-month continuing investing cash flow was an outflow of $1.565 billion; continuing financing cash flow was an outflow of $3.247 billion. The latter included $3.966 billion of share repurchases and $359 million of dividends, partly offset by debt issuance.
- eBay repurchased approximately $4.0 billion of stock in the first nine months, including $2.25 billion in Q3. Approximately $5.0 billion remained authorized at quarter-end. The board declared a $0.18-per-share dividend payable in December 2021.
- Management stated existing liquidity, expected operating cash flow, borrowing capacity and capital-market access should be sufficient for foreseeable needs. eBay reported compliance with debt covenants and investment-grade ratings with stable outlooks.
Material changes, outlook and risks
- Managed-payments migration and related higher take rates drove transaction-revenue growth despite weaker marketplace volume. More than 90% of global on-platform volume was processed through managed payments; eBay expected to complete the migration by year-end 2021.
- Management attributed Q3 GMV decline primarily to lower traffic as mobility restrictions eased. It warned that pandemic-related consumer behavior and mobility trends remained uncertain and contributed to volatility. The filing provides no quantified forward revenue or earnings guidance.
- In June, eBay completed the Classifieds transfer to Adevinta for $2.5 billion cash and an initial 44% equity interest. Adevinta shares were valued at $9.279 billion at quarter-end; their fair-value decline generated a $1.075 billion Q3 loss in interest and other, net. In July, eBay agreed to sell additional Adevinta shares for approximately $2.43 billion in total, subject to regulatory approval, reducing its ownership to 33% when completed.
- eBay agreed to sell 80.01% of eBay Korea for approximately $3.0 billion, subject to adjustments and regulatory approval, retaining 19.99%. Completion was expected by the end of 2021 or early 2022, but was not assured; delay or failure could adversely affect results, cash flows and share price.
- Interest and other, net was an expense of $228 million in Q3, versus income of $94 million a year earlier. Besides the Adevinta loss, results included a $595 million KakaoBank investment gain and a $311 million Adyen warrant fair-value gain. These market-sensitive items materially affected reported earnings.
- Other disclosed exposures include foreign-exchange and interest-rate movements, changing post-pandemic traffic, managed-payments losses and costs, tax examinations, and unpredictable legal or regulatory proceedings. Management said recorded legal accruals and reasonably possible direct monetary losses were not material, while noting outcomes and non-monetary remedies can be difficult to estimate.
Most important facts for investors to verify
- Whether GMV and traffic trends stabilized after the Q3 decline, and whether take-rate growth can continue without further volume weakness.
- Progress and cost impact of completing managed-payments migration, including chargebacks and customer-protection expenses.
- Closing, final proceeds and retained ownership outcomes for the eBay Korea and Adevinta transactions.
- How Adevinta, KakaoBank and the Adyen warrant fair-value movements affect future earnings and balance-sheet volatility.
- Liquidity and capital-allocation plans relative to $9.082 billion of debt, planned repurchases and dividends.