eBay (EBAY) Drops Over 7% on Sales Warning, Prompting Two Downgrades

Shares of eBay (NASDAQl EBAY) have plunged nearly 8% in pre-open Thursday after the company issued a revenue forecast for the ongoing quarter suggesting weaker sales.

Still, eBay reported better-than-anticipated Q1 earnings results as the pandemic continues to fuel the e-commerce sector.

The U.S. e-commerce giant reported $3 billion in revenue, up 42% compared to the same period a year ago, and beating its previous guidance range of $2.94 billion - $2.99 billion as well as the Wall Street estimates of $2.97 billion.

Gross merchandise value (GMV) came in at $27.5 billion, up 29%. eBay’s profit on an adjusted basis was $1.09 a share, beating its guidance range of $1.03 to $1.08 a share and the analysts’ expectations of $1.07.

The number of annual active buyers rose 7% to 187 million, while the number of sellers climbed 8% to 20 million, reported eBay. When it comes to GAAP, eBay made $0.82 per share.

“We delivered another strong quarter for the company and an excellent start to the year for our buyers and sellers. We generated tremendous volume and earnings, with revenue growth the highest it has been since 2005,” said Jamie Iannone, eBay CEO.

As for the Q2 guidance, eBay estimated a revenue range of $2.98 billion to $3.03 billion, which translates to an 8%-10% surge, and non-GAAP profits of $0.91 to $0.96 cents a share. Wall Street analysts predicted revenue of $2.93 billion and $1.02 in EPS for the June quarter.

eBay said it repurchased $292 million of its stock in the first quarter.

The sales warning prompted analysts at two firms to downgrade EBAY stock to “Neutral.” Moreover, analysts at Stifel and Barclalys slashed their price targets on EBAY.

Susquehanna analyst Shyam Patil says he is “taking our chips off the table” after he downgraded from “Positive” and lowered the PT to $66.00 per share from $75.00.

“We were early with our SOTP and turnaround thesis, and we now believe it has largely played out. At this point, with tough comps, the recovery, and increasing investments, we see the risk/reward as balanced for the stock and are moving to Neutral,” he said in a memo.

Similarly, Wedbush analyst Ygal Arounian moved to the sidelines and lowered the price objective to $63.00 from $74.00 amid lower GMV outlook.

“The 2Q21 guidance implies high-single-digit to low-double-digit GMV y/y declines on an FX-neutral basis. But management noted that also includes a high-single-digit positive impact from continued tailwinds from Covid (mostly mobility) and stimulus,” the analyst wrote to clients in a note.

“To us that means that on an FX-neutral basis eBay is giving back about half of the gains it generated y/y in 2Q20, but when adjusting for stimulus and expectations for limited-mobility induced impacts, eBay is giving back ~80% of the gains. Moreso, visibility into the following quarters as we lap Covid gains is limited as mobility increases. So we move to the sidelines as we potentially head into four quarters of negative y/y GMV growth.”

The analyst concludes by noting many positives to the eBay story, but adds that more “clarity and a better entry point at this stage” are required before moving back to the “Outperform” rating.

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