eBay Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. eBay operates one reportable segment, Marketplace, connecting buyers and sellers through its online marketplaces and apps.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net revenue | $2.380B | $2.501B | $7.285B | $7.807B |
| Gross profit | $1.733B | $1.823B | $5.286B | $5.851B |
| Operating income | $568M | $662M | $1.785B | $2.235B |
| Net income (loss) | $(69)M | $264M | $(1.941)B | $11.639B |
| Diluted EPS | $(0.13) | $0.40 | $(3.44) | $17.16 |
Q3 gross margin was approximately 72.8%, versus 72.9%; operating margin was 23.9%, versus 26.5%. For the nine months, continuing operating cash flow was $1.941B, down from $2.618B. Q3 continuing operating cash flow was $735M, up from $661M.
At September 30, cash and cash equivalents were $2.037B; current assets were $5.289B and current liabilities $3.974B. Total debt was $7.729B, including $1.150B current debt. The company reported $4.8B of cash and short- and long-term non-equity investments available from continuing operations, no commercial paper or credit-facility borrowings, and $2B of available credit-facility capacity. Management said available resources and expected operating cash flow should cover requirements for the next 12 months and foreseeable future.
Material changes and drivers
- Q3 revenue declined 5% year over year, or 2% on an FX-neutral basis. Nine-month revenue fell 7%, or 4% FX-neutral. Management cited post-pandemic normalization, weaker discretionary spending, inflation, geopolitical uncertainty and currency translation; the stronger U.S. dollar reduced revenue by $100M in Q3 and $253M year to date.
- Q3 GMV declined 11% reported and 5% FX-neutral; nine-month GMV fell 16% and 13%, respectively. Transaction revenue declined 4% in Q3, while take rate increased to 12.75% from 11.79%, supported by managed payments and promoted listings.
- Marketing services and other revenue fell 20% in Q3 and 23% year to date, primarily reflecting lower shipping-agreement revenue sharing and advertising revenue.
- Q3 operating income decreased 14%. Nine-month operating expenses declined 3%, but revenue and operating income also fell. Transaction-loss provision decreased year over year, partly reflecting lower bad debt and customer-protection costs.
- Net losses primarily reflect fair-value declines in equity investments and the Adyen warrant: the net investment-and-warrant loss was $593M in Q3 and $4.105B year to date. Adevinta fair-value losses were $501M and $2.973B, respectively. The prior-year nine-month net income included a $12.524B pre-tax Classifieds sale gain, making the net-income comparison unusually large and not representative of recurring performance.
- Investing cash flow was $3.753B for the nine months, mainly from investment maturities and sales; financing cash outflow was $4.536B, including $2.828B of share repurchases, $1.355B of debt repayments and $370M of dividends. About $3.1B remained authorized for repurchases at quarter-end.
Outlook, risks and notable items
- No numerical revenue or earnings guidance is provided in the filing. Management described continued macroeconomic, geopolitical, inflation and consumer-confidence uncertainty, with softness across most markets and effects of foreign-exchange volatility.
- On October 31, 2022, after quarter-end, eBay completed its acquisition of TCGplayer for up to approximately $295M in cash.
- DOJ inquiries concern potentially unlawful regulated or illicit products listed by sellers. eBay and government agencies have discussed potential resolution of EPA-related allegations, including a possible settlement. The company could not estimate potential losses; liability or required business-practice changes could materially affect results.
- Other exposures include intellectual-property and consumer or regulatory disputes, tax examinations, and investment-price risk. The company specifically noted that a $1 change in Adevinta’s share price would change the investment’s fair value by approximately $405M, all else equal.
- Management expected the Inflation Reduction Act’s corporate minimum tax and stock-buyback excise tax to be immaterial. The company reported compliance with debt covenants and effective disclosure controls.
Important facts for investors to verify
- Whether marketplace volume and FX-neutral revenue stabilize, and whether higher take rate can offset continued GMV pressure.
- How much of reported earnings volatility remains attributable to fair-value movements in Adevinta, Gmarket, other investments and the Adyen warrant.
- Progress and potential financial or operational consequences of the DOJ/EPA matters and other legal proceedings.
- Post-acquisition TCGplayer cost, integration progress and contribution to Marketplace performance.
- Liquidity and capital-allocation plans, including debt maturities, buybacks and dividends amid weaker operating cash flow and macroeconomic uncertainty.