eBay Inc. (EBAY) reported third quarter pro forma earnings that beat consensus estimates by a penny. However, shares were up 8.1% after hours, as the company recorded a $1.1 profit per share on the sale of Skype.
Revenue
Gross revenue of $2.37 billion was up 5.9% sequentially and 16.5% year over year. Around 88% of total revenue was transactions-based, while the remaining 12% came from marketing services. Both existing segments contributed to the revenue increase in the last quarter.
Revenue by Segment
Marketplaces revenue increased 7.2% sequentially and 15.4% compared to the year-ago quarter. The sequential revenue increase was driven by a 5.9% increase in transaction revenue and a 14.2% increase in marketing services revenue. The year-over-year increase was due to a 16.6% increase in transaction value and a 10% increase in marketing services. Vehicles volume continued to decline both sequentially and year over year. The segment generated 62% of total revenue.
Payments revenue increased 15.6% sequentially and 27.7% from the year-ago quarter. Revenue from transactions was up 16.6% sequentially and 25.3% year over year, as both the number of active users and the number of transactions increased. Although the revenue generated per transaction declined, this was partially offset by the lower cost per transaction and lower transaction loss rate. Marketing services revenue was flat sequentially (down 0.8%), but up a whopping 104.2% from the year-ago quarter. The segment generated 34% of total revenue.
Communications revenue was down 39.5% sequentially and 22.9% from the year-ago quarter. Both comparisons were impacted by the sale of the unit (Skype) in November 2009. Transactions represented 92% of communications revenue, while marketing services accounted for the rest.
Revenue by Geography
Around 44% of total revenue was generated in the U.S., representing a sequential increase of 2.9% and year-over-year increase of 10.8%. The balance came from international markets, increasing 8.4% sequentially and 21.3% year over year. An increasing percentage of revenue from both Marketplaces and Payments segments is coming from international markets.
The pro forma gross margin for the quarter was 72.9%, up 113 bps from the previous quarter’s 71.7%, mainly due to a more favorable mix.
Marketplaces and Payments segments have been seeing shrinking gross margins over the past few quarters. Payments margins have seen the biggest declines, as revenue per transaction has been declining at a much faster rate than costs per transaction. Marketplaces margins have been impacted by the severe price competition in the online retail market, although margins are much higher than the Payments segment.
Operating expenses of $921.2 million were higher than the previous quarter’s $887.5 million. The operating margin was 34.0%, up 194 bps from the 32.1% recorded in the previous quarter. The increase was mainly attributable to the lower COGS (as a percentage of sales), helped by slightly lower product development and general & administrative expenses, partially offset by slightly higher sales & marketing expenses (as a percentage of sales).
Excluding the impact of restructuring charges, stock compensation expenses, amortization of intangible assets, provision for transaction and loan losses, the Joltid legal settlement charges, the gain on sale of Skype and the associated tax impact, the pro forma net income was $452.5 million or 19.1% net income margin, compared to $568.5 million or 25.4% in the previous quarter and $624.6 million or 30.7% in the year-ago quarter. Including special items, the GAAP EPS was $1.02 compared to $0.27 in the September 2009 quarter and $0.38 in the December quarter of last year.
Balance Sheet
The company has a solid balance sheet, with cash and short term investments of $4.94 billion, up $1.8 billion in the last quarter. The company generated $770.6 million in cash from operations and spent $172.9 million on capex, netting a free cash flow of $597.7 million. The company received $1.78 billion in cash for Skype, which was responsible for the increase in the cash balance.
Guidance
Management expects first quarter 2010 revenue of $2.1-2.2 billion, GAAP EPS of $0.29-0.31 and non GAAP EPS of $0.39-$0.41. The non GAAP EPS excludes intangibles amortization charges of $65-75 million, stock based compensation related charges of $$90-110 million and restructuring charges of $20-25 million.
For the full year, management expects revenue of $8.8-9.1 billion, GAAP EPS of $1.29-$1.34 and non GAAP EPS of $1.63-$1.68. The non GAAP EPS excludes intangibles amortization charges of $230-245 million, stock-based compensation related charges of $$410-440 million and restructuring charges of $20-25 million.
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