eBay Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. eBay reported Marketplace, StubHub and Classifieds as its three segments. The filing is an annual report; fourth-quarter data are included where relevant.
Business context
eBay operates global commerce and classifieds platforms, generating transaction fees primarily from Marketplace and StubHub and marketing, advertising and listing revenues across its businesses. At year-end, its Marketplace and StubHub platforms had more than 180 million active buyers and over one billion live listings. Full-year GMV was $90.2 billion, approximately 60% international.
Financial performance and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Net revenue | $10.80 billion | $10.75 billion |
| Gross profit / gross margin | $8.29 billion / 76.8% | $8.36 billion / 77.8% |
| Operating income / operating margin | $2.32 billion / 21.5% | $2.22 billion / 20.7% |
| Continuing-operations income | $1.79 billion | $2.53 billion |
| Diluted EPS from continuing operations | $2.10 | $2.55 |
| Cash from continuing operating activities | $3.11 billion | $2.66 billion |
| Total debt | $7.76 billion | $9.23 billion |
| Working capital | $640 million | $2.67 billion |
Year-end cash, cash equivalents and non-equity investments were approximately $3.8 billion, including about $3.4 billion held in foreign operations. Balance-sheet cash and cash equivalents were $975 million; short- and long-term investments were $1.85 billion and $1.32 billion. The company reported $3.11 billion of operating cash flow, spent $554 million on property and equipment, repaid $1.55 billion of debt, repurchased approximately $5.0 billion of shares and paid $473 million in dividends. It had no commercial paper or revolving-credit borrowings outstanding and reported compliance with debt covenants.
Changes versus comparable periods
- Revenue increased 1% reported and 2% on an FX-neutral basis, while total GMV declined 5% reported and 2% FX-neutral. Marketplace GMV fell 5%, but Marketplace transaction revenue rose 2%, primarily from a higher take rate and promoted listings.
- Marketplace marketing-services revenue fell 13%, mainly reflecting the shift from third-party advertising to promoted listings, which are recorded as transaction revenue, and the brands4friends divestiture. Classifieds revenue grew 4%, led by motors platforms.
- Gross profit declined about 1%, but operating income increased 4% and operating margin improved from 20.7% to 21.5%, alongside lower sales and marketing and product-development costs.
- Continuing-operations income and diluted EPS declined. Interest and other, net moved from income of $496 million in 2018 to expense of $114 million in 2019; 2018 included $579 million in gains on the Flipkart investment sale and Giosis investment relinquishment. 2019 included a $133 million gain from the Adyen warrant fair-value change and a $52 million loss on the brands4friends divestiture.
- The effective tax rate increased to 18.8% from 7.0%; the 2018 rate benefited from adjustments to the 2017 U.S. tax-reform provision and other items. Working capital declined substantially year over year.
In the fourth quarter, revenue was $2.82 billion versus $2.88 billion in fourth-quarter 2018; income from continuing operations was $558 million versus $763 million.
Outlook, management commentary and risks
- The filing does not provide numerical full-year 2020 revenue or earnings guidance. Management said it expected GMV and revenue divergence to continue, citing promoted-listing growth and take-rate dynamics.
- eBay agreed in November 2019 to sell StubHub to viagogo for $4.05 billion in cash, with closing expected in the first quarter of 2020, subject to conditions, regulatory approval and buyer financing. At year-end, eBay did not consider closing probable; StubHub remained classified as held for use.
- A strategic review of the asset portfolio continued. A three-year operating-efficiency plan was intended to improve margins and create capacity for reinvestment, but the filing cautioned that results were not assured.
- eBay appointed an interim CEO in September 2019 and the Board was searching for a permanent CEO. CEO-transition severance contributed to higher general and administrative expense; 2019 also included $77 million in restructuring charges.
- Key risks include intense ecommerce competition, declining GMV, reliance on international and cross-border activity and foreign currencies, evolving privacy, payments and sales-tax regulation, cybersecurity and service interruptions, fraud, litigation and tax examinations. The StubHub transaction could be delayed or fail. Legal and regulatory accruals were not material, but outcomes remain uncertain.
- The company paid a $0.16-per-share dividend in January 2020 for payment in March and authorized an additional $5.0 billion share-repurchase program; future dividends and repurchases remain discretionary.
Important facts for investors to verify
- Whether the StubHub sale closed, its final proceeds and any effects on reported results or capital allocation.
- Whether revenue and earnings growth can be sustained while Marketplace GMV declines, and whether promoted listings and higher take rates offset volume weakness.
- Drivers of the lower gross margin, sharply reduced working capital and the gap between net income and operating cash flow.
- Debt maturities, cash available after repurchases and dividends, and the company’s reliance on cash held abroad.
- Progress on the CEO search and efficiency plan, and the outcome of material tax audits, regulatory matters and other contingencies.