eBay Inc.’s (EBAY - Free Report) third-quarter 2018 earnings surpassed the Zacks Consensus Estimate by a penny. Pro-forma earnings of 56 cents improved 16.7% year over year.

Gross revenues of $2.65 billion increased 6% year over year (up 6% on an Fx-neutral basis) and were within the guided range of $2.64-$2.69 billion. Moreover, revenues surpassed the Zacks Consensus Estimate by 0.12%.

Following third-quarter results, eBay’s shares gained 1.39% in after-hour trading. However, on a year-to-date basis, the company’s shares have lost 27.4%, underperforming its industry’s decline of 0.5%.

On the call, management sounded impressed with the progress of the company’s transformation and positive response of customers toward the same. eBay plans to invest more in payments and advertising, going forward. Last month, the company rolled out its new payments experience in the United States and has already begun to accept Apple Pay.

During the quarter, eBay completed the sale of its equity stake in Flipkart. In addition, the company announced its intent to acquire Motors.co.uk.

Revenues and GMV

In the third quarter, the Marketplace platform accounted for $2.1 billion of revenues, up 6% year over year on a reported basis and 5% on an FX-Neutral basis. Marketplace GMV was $21.5 billion, up 5% year over year on a reported basis as well as an FX-Neutral basis. The increase was aided by continual expansion of new user experiences.

StubHub contributed $1.2 billion of GMV, up 7% on a year-over-year basis, and revenues of $291 million, which increased 7% from the year-ago quarter.

Classifieds platforms performed pretty well with contribution of $254 million in revenues, up 8% year over year and 11% on a FX-Neutral basis.

Total GMV of $22.7 million in the third quarter grew 5% year over year on a reported basis.

During the quarter, global active buyers/customers increased 4% from the year-ago quarter to 177 million.

Margins and Income

Pro-forma gross margin in the quarter was 77%, down 70 basis points (bps) year over year.

Adjusted operating expenses of $1.4 billion increased 9.2% from the prior-year quarter. As a percentage of sales, sales and marketing expenses increased, while product development and general & administrative expenses decreased.

Non-GAAP operating margin decreased to 26.4% in the third quarter, down 200 bps year over year.

Balance Sheet and Cash Flow

eBay’s balance sheet is highly leveraged, with a long-term debt of $7.7 billion. Cash and short-term investments balance was $4.8 billion at the end of third quarter versus $4 billion in the last reported quarter.

eBay generated $560 million in cash from operating activities and spent $179 million on capex. Free cash flow during the quarter was $381 million and the company repurchased shares worth $1 billion.

Outlook

For the fourth quarter of 2018, eBay expects revenues to grow 4-5% on an Fx-neutral basis to $2.85-$2.89 billion. The Zacks Consensus Estimate for fourth-quarter revenues is pegged at $2.91 billion. Non-GAAP earnings are expected within 69-69 cents and the Zacks Consensus Estimate for the same is pegged at 68 cents. GAAP earnings per share from continuing operations are expected in the range of 87-92 cents.

eBay decreased its full-year revenue guidance for 2018. The company now expects full-year revenues between $10.72 billion and $10.76 billion versus previous guided range of $10.75-$10.85 billion. The corresponding Zacks Consensus Estimate is pegged at $10.77.

Adjusted earnings per share are expected between $2.29 and $2.31 versus prior guided range of $2.28-$2.32. The Zacks Consensus Estimate for the metric is pegged at $2.28.

eBay Inc. Price, Consensus and EPS Surprise

eBay Inc. Price, Consensus and EPS Surprise | eBay Inc. Quote

Zacks Rank and Key Picks

Currently, eBay carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader technology sector are boohoo group plc (BHOOY - Free Report) , IAC/InterActiveCorp (IAC - Free Report) and AMETEK, Inc. (AME - Free Report) , each carrying a Zacks Rank #2 (Buy). 

Long-term earnings growth rate for boohoo group plc, IAC/InterActiveCorp and AMETEK is currently pegged at 25%, 15% and 10.97%, respectively.