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EBay execs unpack Q2 earnings beat on repositioning efforts

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EBay execs unpack Q2 earnings beat on repositioning efforts

EBay Inc.continued to execute on its initiative to retool its e-commerce platform andreposition its brand, and executives said the second-quarter outperformancereflects those changes.

The company reported net revenues of $2.23 billion, up 6%year over year from $2.11 billion in the prior-year period.

CFO Scott Schenkel on the company's July 20 earnings callsaid these results represent two quarters of revenue growth at or above 6%,well above the company's January forecast of revenue growth of 2% to 5%, and itwould raise its guidance on the results.

EBay is seeing "green shoots on our strategicinitiatives, and the accelerated volume and revenue growth gives us confidenceto raise our projections for the full year," the executive said.

"This quarter gives us confidence that we are on theright path," CEO Devin Wenig added.

Marketplace revenue growth of 3% to $1.8 billion (excludingforeign exchange impact), StubHub revenue growth of 40% to $225 million and 15%growth in Classifieds revenue to $207 million each supported theoutperformance, Wenig said.

These parts of the business benefited from severalinitiatives implemented throughout the quarter. One of the most notabledevelopments was the increased application of machine learning, artificialintelligence and structured data approaches to organizing the platform. Whilethese efforts are still in their early stages, they are giving sellers moreinsights on their eBay businesses and buyers a more personalized experience,the executive said. Such data-driven enhancements allow the company to focuscampaigns on areas where there is a supply-demand imbalance and reduce frictionon the consumer side.

"I want us to be early on AI," Wenig said,explaining the company is building these services for when the AI "revolutioncomes."

Throughout the first half of the year, the company continuedto evolve the platform and user interface with services like a deals platformthat offers free shipping, category pages like one for wine enthusiasts, a newbrowsing experience, new product pages, a new virtual reality experience andrecommendation software for StubHub customers, an expanded partnership withFedEx for shipping improvements and multiple updates to the mobile platform.EBay now offers free shipping on two-thirds of its inventory, and productstypically ship in three days or less, the executives said. The company alsomade significant gains in its search engine optimization efforts, they added.

These initiatives each supported growth in traffic andconversion rates, Wenig said, which penciled out to the financialoutperformance.

The company's quarterly net income came to $435 million, or38 cents per share, compared to $83 million, or 7 cents per share, in the 2015quarter.

Net income from continuing operations was $437 million, or38 cents per share, compared to $430 million, or 35 cents per share, a yearago. On a non-GAAP adjusted basis, net income from continuing operationsclocked in at $496 million, or 43 cents per share, compared to $517 million, or42 cents per share, in the year-ago quarter.

The S&P Capital IQ consensus EPS estimate for the secondquarter was 42 cents on a normalized basis and 35 cents on a GAAP basis.

But the executives warned that one or two quarters ofoutperformance does not a turn-around make.

"I said it was a multiyear journey a year ago, and it'sstill a multiyear journey," Wenig said. "I don't want to getover-exuberant."

He and Schenkel warned that lapping difficult StubHubcomparisons as well as the PayPal spinoff would put some downward pressure onfinancial performance in the second half of the year, but despite this theystill raised their guidance for 2016.

Looking ahead, the company said it expects third-quarter EPSfrom continuing operations in a range of 35 cents to 37 cents. On a non-GAAPadjusted basis, the company expects a range of 42 cents to 44 cents. Thecompany expects net revenue between $2.16 billion and $2.19 billion.

For the full year, the company expects EPS from continuingoperations in a range of $1.60 to $1.65, or on a non-GAAP adjusted basis $1.85to $1.90. Full-year net revenue is expected to be between $8.85 billion and$8.95 billion. These ranges represent increases from the company's expectationsin the prior quarter, the executives said.

The S&P Capital IQ consensus EPS estimate for third quarteris 44 cents on a normalized basis and 37 cents on a GAAP basis. For the fullyear 2016, the consensus estimate is $1.86 on a normalized basis and $1.59 on aGAAP basis.

EBay also announced that it repurchased $500 million incommon stock during the quarter and approved an additional $2.5 billion inrepurchase authorization.

Investors cottoned to the earnings beat, the guidance raise,the returns and the positive commentary, bidding shares up more than 6% inafter-hours trading.