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EBay CFO: Tax reform prompts 'wider-than-normal' FY'18 guidance

Executives at e-commerce marketplace operator eBay Inc. said the company is giving wider-than-normal guidance for its fiscal full-year 2018 performance based on the uncertainty of how the details of U.S. tax reform will play out.

"Our guidance range is slightly wider than normal, driven by uncertainty in how all elements of U.S. tax reform will impact us going forward," Scott Schenkel, eBay's CFO and vice president of finance, said Jan. 31 during a fourth-quarter earnings call with analysts.

EBay said it expects revenue for the full year ending Dec. 31, 2018, to grow to between $10.9 billion and $11.1 billion, with GAAP earnings per diluted share from continuing operations in the range of $1.65 to $1.75.

The company said passage of the recent U.S. tax reform caused it to take measures resulting in a loss for the fourth quarter ended Dec. 31, 2017. Schenkel said the company recorded a $1.9 billion tax charge related to the repatriation of foreign earnings, $1.4 billion of which will be paid over eight years. He said the charge is largely offset by the reversal of the company’s $1.8 billion deferred tax liability established in 2014, primarily in anticipation of repatriation of foreign earnings.

EBay also recorded a $3 billion deferred tax liability charge to address other areas of U.S. tax reform, including a global minimum tax that will now be applicable to the company's foreign earnings. The CFO said this tax will impact eBay's ongoing tax rate and cash taxes.

For the 2018 fiscal year, Schenkel said the company expects a non-GAAP effective tax rate in the range of 19% to 22%, and it predicts that U.S. tax reform will benefit its ongoing tax rate by approximately 1 point. He said reduction of the U.S. corporate tax rate from 35% to 21% is largely offset by the global minimum tax and other foreign taxes that can no longer be credited against eBay's U.S. tax liability.

The company also said Jan. 31 that it plans to intermediate payments on its marketplace and directly manage transactions to simplify the experience for buyers and sellers. It signed an agreement with Dutch payment processing company Adyen BV to implement these changes, which will be a multiyear process. The company said it will begin payments intermediation on its marketplace platform on a small scale in North America starting in the second half of 2018, and it expects to have transitioned the majority of its customers to the new payments system in 2021.

EBay said its current operating agreement with PayPal Holdings Inc. will remain in place through mid-2020. It noted that the two companies have realigned the terms of their agreement, and PayPal will remain an optional way for customers to pay at the eBay checkout until July 2023.

"After careful consideration, we believe that we can offer a more seamless experience while giving buyers and sellers more choice for payment and payout options. At the same time, we believe we can capture significantly better economics while reducing overall selling costs," eBay President and CEO Devin Wenig said during the earnings call. "We've built a world-class team to execute on this payment opportunity, including senior executives from companies such as PayPal, Alipay and Amazon Payments."

Schenkel said the new payment model, under which eBay will charge customers a single fee for its marketplace and payment services, should generate annualized revenue of more than $2 billion once the majority of the company's volume has transitioned to the new system.

The CFO said the investment in the payment program should cost the company between 3 and 5 cents in full-year 2018 EPS, which is factored into its full-year 2018 guidance. Schenkel said the investment is likely to increase in 2019.