Story Stocks^®

A downbeat Q4 revenue forecast from eBay (EBAY -8%) has sellers active today, clouding several bright spots from Q3 and pushing the stock down toward one-month lows. EBAY did surpass earnings and revenue estimates in the quarter on gross merchandise volume (GMV) growth above its previous guidance. The online auction platform also sustained mild growth with its active buyers, ticking 1% higher yr/yr and sequentially to 133 mln. Nevertheless, guidance was a critical metric ahead of EBAY's Q3 report, especially with shares trading only around 7% below one-year highs.

• Supporting its 1% yr/yr GMV growth to $18.3 bln -- the second straight quarter of positive growth -- was EBAY's Focus Category business, which remains pivotal to separating the e-commerce firm from the more prominent players in the market, including Amazon (AMZN) and Walmart (WMT). Focus Category GMV grew by nearly 5% yr/yr in Q3, outpacing the rest of EBAY's marketplace by around 5 pts.
  • Focus Categories include collectibles, refurbished gadgets, motor parts, luxury fashion apparel, and more. Collectibles were a notable standout in Q3, with trading cards GMV accelerating to double-digit growth.
• With the assistance of Focus Categories, EBAY expanded its top line by 3% yr/yr, a decent uptick from the 1% bump last quarter to $2.58 bln. The strong sales growth trickled down to EBAY's bottom line, delivering a 16% improvement yr/yr to $1.19 per share.
• However, EBAY's sales growth momentum is projected to reverse course in Q4, targeting revenue of $2.53-2.59 bln, a 1.5% drop yr/yr at the midpoint. A few outside factors are weighing on sales guidance. EBAY continues to operate in a challenging environment, plagued by persistent inflationary pressures. Meanwhile, the company is dealing with a few one-off dynamics, such as shifting attention to the U.S. elections and a shorter holiday shopping period this year. FX impacts are also taking a bite out of expected growth.
• Another component eroding Q4 revenue guidance is EBAY's major overhaul in the U.K. The company is rolling out free selling -- similar to rival privately-held platform Mercari -- where EBAY manages shipping and charges higher buyer fees. The company believes this feature generates incremental revenue and operating income. EBAY is ramping these features during Q4 and through Q1, not introducing buyer fees until the end of Q1, causing a re-monetization lag weighing on Q4 revenue.

While Q3 was a solid showing for EBAY, Q4 is taking a step back. The company still expects around flat to +2% GMV growth for the holiday quarter and adjusted EPS of $1.17-1.22, translating to a similar uptick as in Q3. However, the projected sales decline proves too much to simply shrug off today. Still, the stable success of Focus Categories is encouraging. Also, EBAY has already seen increases in new listers in the U.K. as it rolls out its changes. This early evidence is promising that perhaps revenue will tick higher once the U.K. overhaul is complete sometime during 1H25. As such, EBAY is worth keeping on the radar.