eBay's Sluggish Earnings Raise Concerns Amid Weak Market Performance

eBay's recent earnings report shows a decline in statutory earnings due to a one-time contribution from unusual items. The company's true underlying earnings power may be less than its statutory profit. Concerning factors include a drop in earnings per share over the last year and potential risks. Our analysis suggests that shareholders should be cautious and consider other factors such as margins, forecast growth, and return on investment.

eBay (NASDAQ:EBAY) recently released its second quarter 2025 earnings report, showing mixed results that highlight both growth and challenges. The company reported GAAP revenue of $2.73 billion, a 6% increase from the prior year, surpassing analyst expectations by more than $50 million [1]. Non-GAAP earnings per share reached $1.37, beating consensus by $0.07 and up 16% from the prior-year period. However, free cash flow turned negative at ($441 million), a significant swing from $278 million a year ago.

The quarter highlighted several key developments. Gross Merchandise Volume (GMV) increased by 6%, with U.S. GMV growing 7% and international GMV increasing 5%. The number of active buyers rose modestly to 134 million, a 1% increase from a year earlier. Advertising revenue was a significant contributor, with total ad sales reaching $482 million, or 2.5% of GMV.

eBay also made strategic investments in technology, including the launch of "eBay Live" shopping in the UK and the expansion of the “eBay Live on Tour” initiative in the U.S. The company introduced AI shopping agents and a generative AI video tool for sellers. Additionally, the Authenticity Guarantee program expanded, authenticating over 1 million items in a single quarter for the first time.

However, the report also highlighted several concerns. The GAAP operating margin declined to 17.7% from 21.3% in the prior-year period, primarily due to higher legal expenses, restructuring costs, and increased bonus accruals. Operating cash flow was negative $307 million, and free cash flow dropped to ($441 million) from $278 million a year earlier. The company returned $759 million to shareholders through share repurchases and dividends, but its cash and investments portfolio fell to $5.4 billion as of June 30, 2025, down from $7.6 billion at the end of fiscal 2024.

Looking ahead, eBay's management expects revenue between $2.69 billion and $2.74 billion for the third quarter of 2025, representing 3% to 5% year-over-year growth on a currency-neutral basis. The non-GAAP earnings per share outlook is $1.29 to $1.34, and GMV is projected to be between $19.2 billion and $19.6 billion. However, the guidance points to uneven demand internationally, particularly in the UK and Germany.

Investors should monitor the normalization of cash flow, the sustainability of advertising revenue growth, and any further changes in legal or regulatory costs that could affect margins. The impact of ongoing investments in AI and marketplace enhancements on eBay’s operational performance and competitive position will also be important in the coming quarters.

References:
[1] https://www.nasdaq.com/articles/ebay-ebay-q2-revenue-rises-6
[2] https://www.tradingview.com/news/reuters.com,2025:newsml_L8N3TX3H9:0-joint-corp-expected-to-post-a-loss-of-2-cents-a-share-earnings-preview/