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Jul 18, 2018

EBay's bleak Q2 sales outlook signals lean times ahead

CP Rail and IBM beat in busy day for earnings

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EBay Inc. (EBAY.O) gave a lackluster sales forecast for the third quarter, signaling leaner times may be ahead for the company following a round of layoffs.

The online marketplace said sales will be US$2.64 billion to US$2.69 billion in the third quarter, while analysts were projecting US$2.73 billion. Earnings per share, excluding some costs, are seen at 54 cents to 56 cents, compared with the 56 cent average analyst estimate. The company also pared its full-year revenue projection. The outlook revived concerns that EBay is struggling to find its place in the shadow of online retail behemoth Amazon.com Inc.

Investors are monitoring EBay’s growth to determine if it can remain relevant in an e-commerce market dominated by Amazon. Adding to the pressure are brick-and-mortar retailers like Walmart Inc. that are enhancing their own digital-shopping options.

In the second quarter, EBay’s profit was 53 cents a share on revenue of US$2.64 billion, according to a statement Wednesday. Total gross merchandise volume, a key metric, rose 10 per cent to US$23.6 billion. Active customer accounts grew 4 per cent to 175 million.

“They essentially reported the same thing as last quarter, where revenue was light but profits were solid," said Tom Forte, an analyst at DA Davidson & Co, adding that customer growth of 4 per cent fell short of his expectations.

The shares fluctuated wildly after the earnings were announced, tumbling as much as 6.4 per cent in extended trading before rising into positive territory and then slipping again. The stock closed at US$37.95 in New York. EBay shares have see-sawed this year, peaking at US$46.19 in February after the company announced it would lower costs by using Adyen BV for payments processing rather than longtime partner PayPal Holdings Inc. It gave the gains back in April after issuing a lackluster revenue forecast for the second quarter.

There are signs EBay is struggling. The company in June announced a reorganization that resulted in almost 300 layoffs. Software engineers and research scientists were among those let go in California, where EBay has headquarters in San Jose. The company had 14,100 employees globally at the end of 2017.

EBay has boosted advertising and changed the marketplace shopping experience in an effort to lure new customers to the site. It tries to differentiate itself from Amazon, which charges yearly or monthly dues for shipping discounts, by emphasizing that EBay has no membership fees to access deals that often include free shipping. It ran a day of discounts on July 16 to compete with Amazon’s Prime Day.

Amazon continues to gain market share, and now boasts 100 million global Prime subscribers. The world’s biggest online retailer will capture 49.1 per cent of online spending in the U.S. this year, up from 43.5 per cent in 2017, according to EMarketer Inc. EBay is a distant second in the U.S. with 6.6 per cent of all spending.