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EBay Inc. operates marketplace platforms that connect buyers and sellers worldwide. The company's Marketplace platform includes its online marketplace at ebay.com and the eBay suite of mobile apps. Its platforms enable users to list, buy, sell, and pay for items through various online, mobile, and offline channels that include retailers, distributors, liquidators, import and export companies, auctioneers, catalog and mail-order companies, classifieds, directories, search engines, commerce participants, shopping channels, and networks.

EBay recently reported Q1 profit figures and guidance for the ensuing quarter. Read the article below, to see how the market reacted.

EBay drops more than 10% after giving light

April 28, 2021 from CNBC website

Shares of eBay slumped more than 10% on Thursday after the company reported an earnings outlook for the current quarter that fell short of Wall Streets estimates.

EBay said Wednesday afternoon that it expects 91 cents to 96 cents in adjusted (Non-GAAP) earnings per share and revenue of $2.98 billion to $3.03 billion in the second quarter. Analysts polled by Refinitiv had expected 98 cents per share and $2.98 billion in revenue.

Several investors were spooked by the lighter-than-expected outlook and either downgraded the stock or lowered their price targets. Online marketplaces such as eBay, Amazon, Etsy and Wayfair all face growing pressure to prove that the pandemic-fueled boost to their businesses can last as the vaccine rollout accelerates and the economy reopens.

Wedbush analysts Ygal Arounian and Chad Larkin downgraded eBay on Thursday to neutral from outperform following the results, saying that the guidance implies the company is poised to give back much of the gains it generated in 2020.

Visibility into the following quarters as we lap Covid gains is limited as mobility increases, the analysts wrote in a note to clients. So we move to the sidelines as we potentially head into four quarters of negative [year-over-year gross merchandise volume] growth. The investment firm lowered its price target on eBay shares from $74 to $63.

The disappointing guidance overshadowed eBays better-than-expected results for the first quarter. The company posted revenue of $3 billion, which surpassed consensus estimates of $2.97 billion. Adjusted earnings per share were $1.09, higher than Wall Streets forecast of $1.07.

Gross merchandise volume grew 29% year over year to $27.5 billion, above analysts expected $26.3 billion. GMV is a closely watched metric in the e-commerce industry that measures the total value of all goods sold on the site.

Wall Street analysts forecast EPS based on managements definition of EPS. Below are First Call Consensus Estimates of eBay EPS, consistent with how eBay calculates Non-GAAP EPS. The estimates are from April 28 (day of earnings announcement) and May 5^th. I also have Non-GAAP S&P 500 earnings estimates as of May 5^th.

First Call Consensus Analyst Estimates for Non-GAAP eBay EPS and S&P 500 thru 2022.

	EBAY as of April 28	EBAY as of May 5	May 5 S&P 500 index earnings estimates
1st quarter 2021 EPS	1.07	1.09 (Actual)	45.79
2nd Quarter 2021 EPS	1.02	0.95	43.09
3rd Quarter 2021 EPS	0.97	0.90	46.15
2021 Annual EPS	4.06	3.93	183.52
2022 Annual EPS	4.56	4.19	206.13

First call estimates take into account management lowering the number of shares by repurchasing stock. So, for instance, a large chunk of the growth in EPS going from $3.93 to $4.19 could be due to fewer shares outstanding (because shares are repurchased with company cash flows). Hence, the increase in EPS may not reflect actual increases in operating profits

Here are some questions based on the above information and eBays reconciliation of Non-GAAP EPS with GAAP EPS for the first quarter of 2021 and 2020,

First, some additional facts:

EBay traded at $57.69 as of May 5^th and had 681 million shares outstanding as of March 31.

eBays beta = 1.11, based on a 5 year regression of monthly eBay returns vs S&P 500 returns (Source: Yahoo).

EBays forward price to earnings ratio = Price / 2021 EPS Non-GAAP forecast = $57.69 / 3.93 = 14.68.

S&P 500 Non-GAAP earnings estimate for 2021 = 183.52 (and GAAP estimate = $176.94) and the S&P 500 Index value on May 5^th was 4164.

The S&P 500 index value / Non-GAAP S&P 500 2021 earnings estimates = 22.69 = 4164 / 183.52.

1. EBay beat EPS expectations on April 28, but eBays share price fell 10%. Can you explain why? YES THIS IS AN EASY QUESTION given above information.
2. Can you explain why eBay trades at a much lower price to forward Earnings than the S&P 500?
3. Do you believe eBay reports Non-GAAP EPS figures that are inflated relative to true economic EPS? Explain why or why not, citing Non-GAAP adjustments that may be problematic? This is a bit of an exercise in common sense.

Reconciliation of GAAP Operating Income to Non-GAAP Operating Income

			Three Months Ended March 31,
						2021						2020
			(In millions, except percentages)
GAAP operating income						$	842					$	565
Stock-based compensation expense and related employer payroll taxes						107						93
Amortization of acquired intangible assets within cost of net revenues												1
Amortization of acquired intangible assets within operating expenses						7						7
Other significant gains, losses or charges (mostly restructuring expense)						41						7
Total non-GAAP operating income adjustments						155						108
Non-GAAP operating income						$	997					$	673
Non-GAAP operating margin						33.0		%				31.6		%

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