E-commerce retailer and auction site eBay (NASDAQ:EBAY) could report its results for the fourth quarter of fiscal 2021 on February 1.
Now that billions of doses of effective coronavirus vaccines have been administered, people are cautiously returning to their old in-person shopping habits. Pandemic behavior reversal is hurting eBay sales and customer engagement. Still, the rise of bottlenecks and shortages in the supply chain could have played a positive role in eBay’s next results. This is a metric investors should pay attention to in the fourth quarter. Let’s take a closer look.
Consumers may have returned to eBay
Remember that eBay does not own any of the inventory for sale on its website. Instead, its role is to connect buyers and sellers and facilitate transactions on its platform. eBay makes money by taking a percentage of each sale (the take rate) and it has increased that share. From the second quarter of 2020 to the third quarter of 2021, eBay increased its transaction rate from 9.2% to 12.1%. Its increased turnout was the main reason eBay grew revenue 11% year-over-year in the third quarter.
Gross merchandise value (the total sum of sales on its platform) increased from $21.7 billion in Q3 2020 to $19.4 billion in Q3 2021 (ending September 30). The decline in spending on eBay coincides with the reopening of the economy. The widespread availability of COVID-19 vaccines has made people feel safer venturing outdoors where they have more options for spending their money. Of course, if people spend more money shopping in person, it will hurt e-commerce businesses like eBay.
However, the pandemic has also driven another evolving trend: global supply chain shortages. While it’s true that people are feeling better about resuming some activities they’ve given up since the pandemic began, in-person work doesn’t seem to be one of them. It makes sense to look at it from a worker’s perspective; your salary is about the same, but you are at risk of contracting a potentially fatal virus at work.
It’s no surprise that fewer people are willing to work in these conditions – and that many more cannot due to infection in any given week. Thus, the production and circulation of goods has been limited and consumers more often find that their favorite items are sold out.
Herein lies a potential tailwind for eBay – the site rarely sells anything. If an item is sold out at your favorite retailer, eBay probably has it for sale. Sure, it probably comes at a higher price, but you can choose to pay the premium and make the purchase. Thus, the persistence of supply chain shortages throughout the holiday quarter could have increased eBay’s gross merchandise value.
What this could mean for eBay investors
Wall Street analysts expect eBay to post fourth-quarter revenue of $2.6 billion and earnings per share (EPS) of $1.00. If it reached the EPS estimate, it would represent a 16.3% increase over the same quarter a year earlier.
eBay’s stock is already down more than 10% since the start of 2022. If it surprises on the upside, it could lead to a reversal in its stock price.
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