Photo Credit: Mike Knell/Flickr.com

eBay (Nasdaq: EBAY) recently reported its second-quarter results that surpassed market expectations. The company is now mulling over splitting up, yet again. A few years ago, eBay had spun off PayPal to a separate company, and now it is considering a similar fate for StubHub and its Classifieds business.

eBay’s Financials

eBay’s Q2 revenues grew 2% over the year to $2.7 billion, marginally ahead of the market’s estimates of $2.67 billion. Net income was $402 million, compared with $642 million a year ago. Adjusted EPS was $0.68, significantly ahead of the market’s forecast of $0.62. The impressive earnings were attributed to continued cost cuts and higher monetization. eBay’s take rate, the fee it charges sellers to use its platform, grew to 9.4% from 9.3% a quarter ago and 8.8% a year ago.

By segment, the Marketplace platform revenues grew 1% over the year to $2.2 billion, primarily due to the continued growth of new user experiences. Within the segment, GMV fell 5% over the year to $21.5 billion. StubHub revenues grew 7% to $264 million with its GMV growing 5% to $1.1 billion. Revenues from its Classifieds platforms grew 5% to $271 million.

During the quarter, global active buyers and customers increased 4% to 182 million. eBay also saw its two new business lines deliver strong results. The payments processing platform grew 40% over the previous quarter and now has over 6,000 participating sellers. Its internal ads business revenue more than doubled to almost $100 million. It now has over 940,000 sellers using first-party advertising to promote more than 250 million listings.

For the current quarter, eBay forecast revenues of $2.61-$2.66 billion with an EPS of $0.62-$.65. The market was looking for revenues of $2.68 billion with an EPS of $0.63. eBay expects to end the year with revenues of $10.75-$10.83 billion and an EPS of $2.70-$2.75. The market was looking for revenues of $10.93 billion with an EPS of $2.70 for the year.

eBay’s International Expansion

eBay is making bigger moves in the international markets. Recently, it entered into an agreement with Paytm Mall that will allow eBay’s global inventory to be sold on one of the largest marketplaces in India. As part of the agreement, eBay bought 5.5% stake in Paytm for an estimated $150-$200 million. Together, Paytm and eBay’s management will select the inventory best suited to be brought over to the Indian markets. eBay will continue to operate its own site as well in the market.

This is not the first time that eBay has shown interest in the Indian market. Earlier, it had invested in Snapdeal and Flipkart. When Walmart bought Flipkart last year, eBay sold its stake for $1.1 billion.

eBay’s Fulfillment Service

eBay recently announced plans to launch a third-party end-to-end fulfillment services called Managed Delivery. The service is expected to be launched in 2020 and will help drive uniformity and improvements in service levels across its network of third-party sellers. It is a move directed at managing its competition with Amazon.

But where Amazon runs its own fulfillment service, eBay will partner with several third-party logistics providers on transportation, warehousing, and packaging services. Managed Delivery will offer competitively priced logistics solution for businesses that sell high-volume goods in popular categories. It is expected to reduce the shipping burden on sellers while improving the shopping experience for buyers. Many believe it is a long due move on eBay’s part and are pleased to see it finally make it happen.

eBay needs to improve its growth rate. For the recently reported quarter, for instance, Amazon’s online store revenues grew 14% over the year to $31 billion compared with eBay’s modest marketplace growth of 1%.

eBay’s StubHub Dilemma

Earlier this year, eBay had announced a strategic operating review to evaluate its operations. The review was driven by a few activist investors, Starboard Value and Elliott Management, who have been considering selling eBay’s noncore businesses. As part of the review, eBay is investigating into a possible divestiture of StubHub and its Classifieds business. The investors, who own more than 4% of eBay’s stock, believe that eBay’s Classifieds business has a potential value of $8-$12 billion, and StubHub has that of $3.5-$4.5 billion.

According to a Grand View Research report, the global online event ticketing market size is expected to reach $67.99 billion by 2025, growing at a 5% annualized rate over the next few years. Competitor TicketMaster, which is owned by LiveNation, recently reported quarterly revenues of $370.8 million, growing 6% over the year. 

eBay still needs to take a final call on these businesses, and it will be interesting to see what it decides. Selling these assets will not only give a higher return on the stock but also allow it to focus on its operational efficiency and core business.

Its stock is currently trading at $39.64 with a market capitalization of $34.3 billion. It had climbed to a year high of $42.00 soon after result announcement. Last December, like most other technology stocks, eBay’s stock had fallen to a year low of $26.01 in December last year.